| CITATION | AIR1964KANT75, AIR1964MYS75, AIR 1964 MYSORE 75 |
| DATE | 28 JUNE, 1963 |
| COURT NAME | HIGH COURT OF MYSORE (ORIGINAL SIDE JURISDICTION) |
| PLAINTIFF/APPELLANT/PETITIONER | P.A. TENDOLKAR, R.N. KALGHATGI AND OTHERS (APPELLANTS) |
| DEFENDANT/RESPONDENT. | OFFICIAL LIQUIDATOR, SUPREME BANK OF INDIA LTD. (RESPONDENT) |
| JUDGES | JUSTICE K.S. GOVINDA BHAT |
FACTS OF THE CASE
1. The Supreme Bank of India Ltd., Belgaum, was ordered to be wound up by the High Court of Bombay on 16-04-1956.
2. Upon State Reorganisation, the case was transferred to the High Court of Mysore (now Karnataka).
3. The Official Liquidator, upon investigating reports, filed an application under Section 235 of the Indian Companies Act, 1913, and Section 45-H of the Banking Companies Act, 1949.
4. He alleged that 14 individuals, including directors and officers of the company, committed misfeasance, breach of trust, and fraud.
5. The claim was for a misapplication of funds amounting to Rs. 4,26,000.
6. All respondents denied wrongdoing in their statements.
7. The matter was set for trial on 10-12-1962. Both sides examined four witnesses each.
8. After R.W.4 (Kekare) was examined, the Company Judge tentatively decided to summon some directors and the auditor to give evidence under oath.
9. The Judge issued a formal direction summoning respondents 2 (S.K. Samant), 3 (P.A. Tendolkar), 7 (R.N. Kalghatgi), and 14 (Auditor D.B. Kulkarni) to testify in open court.
10. An appeal was filed against this interlocutory order by respondents 3, 5, and 7.
ISSUES OF THE CASE
1. Whether the order requiring the Directors and the Auditor to appear and give evidence under oath in the misfeasance proceedings is legally valid and enforceable.
2. Whether the Court has the power to summon a party to give evidence against their will in such proceedings.
3. Whether the appeal against the interlocutory order is maintainable.
4. Whether the order was arbitrary due to failure to note objections and give reasons.
JUDGEMENT
1.Three Directors of the Supreme Bank of India filed an appeal challenging the decision that required both them and the company’s Auditor to appear and provide sworn testimony in the misfeasance proceedings initiated by the Official Liquidator.
2. The Court dismissed the appeal, affirming the legality and validity of the order made by the learned Company Judge.
3. The Court held that the order summoning the Directors and Auditor to give evidence on oath was within the powers of the Court and necessary for the proper administration of justice in the misfeasance proceedings.
4. The Court rejected the preliminary objection raised by the Official Liquidator that no appeal lies against interlocutory orders, holding that Section 202 of the Indian Companies Act, 1913, read with Section 4 of the Mysore High Court Act, confers a statutory right of appeal against any order or decision made in winding-up proceedings by a single Judge.
5. The Court emphasized that the procedural provisions of the Mysore High Court Act remain valid and applicable, despite the fact that winding-up matters fall under the exclusive jurisdiction of Parliament.
6. The appellants contended that the Court had no power to summon parties against their will to give evidence on oath, but the Court rejected this, emphasizing the inherent judicial power to summon and examine witnesses, including parties, when necessary.
7. The Court found no merit in the contention that the order was arbitrary or that the learned Judge failed to note objections and give reasons; the Judge had invited objections before making the order and stated fuller reasons would be given in the final order to avoid prejudice.
8. The Court noted that the order was interlocutory and that the appellants retained the right to appeal against the final decision, which safeguards their rights.
9. Considering the nature of the case and the interlocutory stage of the order, the Court declined to impose any costs on the appellants.
10. The Court emphasized the importance of ensuring a fair trial in winding-up proceedings, where Directors and officers who have critical information must be compelled to give evidence if they refuse voluntarily.
REASONING
1. The Court held that Section 202 of the Indian Companies Act, 1913, grants a substantive right of appeal against any order or decision made in winding-up proceedings, and Section 4 of the Mysore High Court Act provides the procedural mechanism for such appeals.
2. The objection that the State Legislature lacked competence to legislate on appeals in winding-up cases was rejected, as procedural enactments by the State Legislature are valid and applicable to the appeal process.
3. The Court distinguished between Section 195 (which allows examination of persons for information in private) and Section 235 (summary enforcement of rights), clarifying that the order to summon Directors and Auditor to give evidence on oath was not under Section 195 but within the Court’s inherent powers.
4. It was emphasized that the Court has inherent judicial power to summon and examine any person, including parties, to ensure justice, supported by procedural laws such as Rule 14 of Order XVI of the Civil Procedure Code and Section 540 of the Criminal Procedure Code.
5. English common law and authoritative legal texts affirm that judges may call witnesses not summoned by parties if necessary to elucidate the truth, and this power is an essential incident of the judicial function.
6. The appellants’ argument that a party cannot be compelled to give evidence against their will was rejected, especially in winding-up proceedings where the Official Liquidator acts as an officer of the Court and the Directors and officers are best placed to explain their conduct.
7. The Court acknowledged concerns from English cases about judges maintaining impartiality but held that the power to summon witnesses does not compromise judicial neutrality and is necessary for a fair trial.
8. The order was interlocutory and made after hearing counsel’s objections; fuller reasons would be given in the final order to avoid prejudicing parties during the trial.
9. The appellants retained the right to appeal the final decision, ensuring their rights were protected.
10. The Court found the brief reasons given for the order were adequate at this interlocutory stage and that the learned Judge acted within his discretion.
11. The Official Liquidator, as an officer of the Court, has the duty to protect company assets, and the Directors and Auditor possess critical information necessary to investigate misfeasance.
12. If these key persons refuse to voluntarily give evidence, the Court must have the power to compel their attendance to ensure a fair and complete trial.
13. The decision of the learned Company Judge to summon the Directors and the Auditor to give evidence on oath in the misfeasance proceedings reflects a pragmatic and fair approach to ensuring that the trial is based on complete and clear evidence. One of the main reasons for this decision was the need to clarify certain aspects of the evidence already presented in the case. In any complex legal proceeding, particularly those involving allegations of financial mismanagement or fraud, it is not uncommon for ambiguities to arise in the testimony or documents presented.
The Judge also emphasized the importance of ensuring that no party would suffer prejudice due to the incomplete or unclear evidence available at that stage. Practically, this reflects a strong commitment to fairness in the judicial process. If the Directors and Auditor had not been asked to testify, the case might have relied on second-hand information or incomplete facts, which could have led to an unjust outcome. By allowing these key parties to provide their testimony, the court ensured that both sides had access to all relevant evidence, minimizing the risk of decisions being made on partial or flawed information. This decision to summon them is a proactive step aimed at preserving the integrity of the legal process.
In particular, the decision to call the Auditor to testify was grounded in the practical reality that the Auditor held critical financial knowledge about the company. Given that the misfeasance proceedings focused on allegations of financial mismanagement, the Auditor’s insight into the company’s financial records would be invaluable in establishing the true nature of the company’s financial situation. As the individual responsible for auditing and verifying the company’s financial statements, the Auditor’s testimony could directly address key questions about potential misapplications or fraudulent activities. This highlights the Judge’s recognition of the crucial role the Auditor played in the company’s operations, and how important their testimony was for shedding light on the financial aspects of the case.
The Judge also demonstrated judicial prudence by choosing not to provide extensive reasoning at that stage of the trial. By reserving a more detailed explanation for the final order, the Judge avoided the risk of prematurely influencing the ongoing trial. This cautious approach reflects an understanding of the complexities involved in corporate law and the potential consequences of any premature remarks. It allowed the trial to continue without disrupting the fairness of the proceedings, showing that the Judge was carefully managing the trial process to avoid any possible prejudice to the parties.
REFERENCES
- https://indiankanoon.org/doc/1197844/
- https://www.casemine.com/judgement/in/56b495ce607dba348f015203
Written by Aishwarya SV, an Intern under Legal Vidhiya.
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