Karnataka High Court
P.A. Tendolkar And Ors. vs Official Liquidator Supreme Bank Of ... on 1 January, 1800
Equivalent citations: [1963]33COMPCAS1159(KAR)
JUDGMENT Govinda Bhat, J.
1. This is an appeal by three of the directors of the Supreme Bank of India Ltd., Belgaum (in liquidation), here in after referred to as "the company" from an order of Mr. Justice after referred to as "the company" from an order of Mr. Justice Narayana Pai J. made in the exercise of the original jurisdiction of the Court, directing three of the directors and the auditor of the company to appear and give evidence on oath before the court in the misfeasance proceedings initiated by the official liquidator against the directors and other officers of the company. The question for determination in this appeal is as to whether that order is not legal and valid. For a correct appreciation of the contentions urged on both sides, it is necessary to state briefly the circumstances under which the order was made.
2. The company was ordered to be wound up by the High Court of Bombay on April 16, 1956. Consequent on the reorganisation of States, the winding up proceedings of the company pending in the High Court of Bombay On November 1, 1956, were transferred to this court. It was numbered a C.P. (B)28/1956 and the official liquidator of this court assumed charge of the winding up proceedings. On the basis of information gathered from certain reports concerning the affairs of the company, the official liqidator made an application under section 235 of the indian Companies Act, 1913 (Central Act VII of 1913), herein. Companies Act, 1949, to examine into the conduct of 14 corespondents named therein and direct them all or such of them as the court may determine to be liable in particular or generally or jointly, to repay nd rector the money of the company which the court may fix. The application, styled as "REPORT No. 20", alleged that the respondents have been guilty of misfeasance, breach of trust and fraudulet conduct inn relation to the company and they have misapplied or become liable for a sum of Rs. 4,26,000. Respondents Nos. 1 to 7 to the said application were the directors of the company at the time off its closing, and respondents Nos. 8 to 13 were its officials and respondent No. 14 was the company's auditor. The respondents filed their statements denying the acts of misfeasance charged against them. After the leadings were filed the case was posted for trial on December 10, 1962, before the learned company judge suggested tot he learned counsel appearing before him that he had tentatively decided to require the presence of the directors and the auditor for giving evidence on oath in open court on matters under investigation before him in the misfeasance on oath in open court on matters under investigation before him in the misfeassane application ad invited them to place whatever circumstances they would like to urge before making up his mind finally so as to call them. HAving heard the counsel, the learned judge made the following order :
"In the light of the evidence already placed on record and with a view to ensure as full a clarification of matters in doubt as possible in the circumstances of the case and with a view to see that no party suffers any prejudice by reason of the evidence so far given or not given by the other parties, I think it is necessary in the interest of justice that the second respondent, S.K. Samant, the third respondent, P.A. Tendolkar, and the seventh respondent, R.N. Kalgahatigi(the directors) should be required to give evidence. D.B. Kulkarni, fourteenth respondent, who was the auditor of the company from its commencement till it came to suspend its business, is not only one of the persons who is likely to be in possession of very useful information regarding the financial affairs of the company, but also one who is arrayed as a party in this misfeasance application. In the interest of fair trial he should be required to give evidence.
3. On consulting the learned counsel they state that the further recording of evidence in this case may be commenced on Wednesday, the 3rd of April 1963.
4. Accordingly, I direct that the second respondent, S.K. samant, the third respodent, P.A. Tendolkar, the 7th respondent, R.N. Kalgahatgi, and D.B. Kulkarni, auditor, fourteenth respondent, do appear in this court to give evidence on examination on oath in open court on Wednesday, the third of April, 1963, at 2-45 p.m. They will continue to attend every day of the subsequent hearing of the application until they are permitted to retire from court. Out of these fur respondents, two off them, viz., the third respondent, P.A. Tendolkar, and he seventh respondent, R.N. Kalgahatigi, are now prescient in curt. They will take note of this order. In addition other office of the court will serve them with formal notice under the seal of this court. Similar formal notices will issue by registered post to the second respondent, S.K. Samant, and D.B. Kulkarni.
5. Because the trial has yet to proceed, I have stated above only the essential consideration leading to my making this direction. Further and fuller reasons will be stetted in the final order, because to discuss them now is, in my opinion,likely to embarrass one or the other of the parties during the remaining stages of the trial."
6. Against the said order respondents nOs. 3, 5 and 7 the misfeasance proceedings have preferred the above appeal. In the meanwhile, the first respondent is the official liquidator, respondents Nos. 2 to 6 are the legal representatives of the original respondent NO 1 who is dead, respondents Nos. 7 to 11, 18, and 19 are the original respondents, Nos. 2,6,8, to 10 12 and 13, and respondents Nos. 12 to 18 are the legal representatives of the original respondent no. 11 . Original respondent nO. 14, the auditor of the company, died subsequent to the order under appeal and his legal representatives have not yet been brought on record.
7. The official liquidator raised a preliminary objection to the maintain ability of the appeal. He contended that no appeal lies since the order in question is an interlocutory order which does not finally decide any dispute and therefore is not a judgment. The appeal purports to be one brought under section 202 of the Act read with section 483 of the Companies Act, 1956 , section 45N of the Banking Companies Act, of the Company act.,1956, corresponds to section 202 of the Act. It Act, 1913., since the winding up was commenced before the commencement of the companies Act of 1956. Section 45N of the Banking Companies Act.1949, has no application since that section relates to any order or decision of the High Court is a civil proceeding under the Banking Companies Act.
8. The relevant section of the Act conferring right of appeal from any order or decision made or given in the matinee of the winding up of a company is section 202 which reads thus:
"Appeals from order -Re-hearing s of , and appeals from, any rode or decision made or given in the matter of the winding up of a company is Companies Act.
9. The relevant decision of the Act conferring right of appeal from any order or decision made or given in the matter of the winding up of a company by the court may be had in the same manner and subject to the same conditions in and subject to which appeal may be had from any order or decision of he same court in cases within its ordinary jurisdiction."
10. Divergent view have been expressed by the High Courts on the interpretation of the appeal provision. According to one view "an order" made in the matter of winding up of a company is appealable provided it amount sot a "judgment " within the meaning of the term in clause 15 of the Letters Patent of the Presidency High Court. The other view taken by the High Court of Bombay is that the first part of the section confers a sustain right upon a party aggrieved by an order made or a decision given by a company judge in winding up and the second part which deals with "the manner and the conditions in which an appeal may be preferred " only refers to the procedural aspect of an appeal may be preferred" only refers to the procedural aspect of a n appeal and the forum to which the appeal would lie; vide Bachharaj FActories Ltd. v. Hirjee Mills ltd., [1955] 25 comp. Cas. 227. The Bombay view was accepted by a Bench of this court in Premier Insurance Co. Ltd. v Dawangere Cotton mill s Ltd. [1961] 31 comp. cas. 737. Section 4 of the Mysore High Court aCt provides for an appeal from a judgment, decree or order of a single judge in the exercise of the original jurisdiction of the High Court to a Bench consisting of two other judges of the High Court . SEction 4 reads thus "4.- Appeals from decisions of a single judge of the High court.- A appeal from a judgment, order or sentence passed by a single judge in the exercise of he original jurisdiction of the High Court under this act or under any law for the time being in force. Shall lie to and be heard by a Bench consisting of two other judges of the High court."
11. While clause 15 of the Letters Patents states that an appeal that lie to a Bench from the "judgment " of one judge of the high court section 4 restricts the right of appeal to orders that would amount to judgments. The official liquidators contended that section 4 an have no application to the winding up of companies At and not to any Act of the State Legislature. This connection of the official liquidator , in our view, is untenable . Right of appeal from orders made in winding up proceedings is derived from section 202. That section, however provides that an appeal against any order or decision may be had in the same manner and subject to the same conditions in and subject to which appeals may be had from any order or decision of the same court in cases within its ordinary jurisdiction. The machinery for appeals is provided by he enactment of the State legislature and that machinery is to be used for appeals provided by the Companies Act. When section 202 is read with section 4 of the High Court Act, it is manifest that a party aggrieved by any order or decision made or given in the matter of the original jurisdiction of he High Court, has a statutory right of appeal to a bench consisting of two other judges of the High Court. The question whether we should interfere in the appeal when the order is interlocutory and does not decide the rights of parties is a matter relating to the merits of the appeal and does not touch the question of the right of appeal. We, therefore, overrule the preliminary objection and proceed to consider the merits of the appeal.
12. Sri. K.R. Karanth, learned counsel for the appellants, challenged the order under appeal on the following two main grounds:
1. That the court has no power to summon a party to an action against his wish to give evidence on oath.
ii. That the order is arbitrary since it has failed to note the objections used and give reasons for the order.
Re Point Number I: Learned counsel argued that section 235 of the Act provides for a summary mode of enforcing rights which must otherwise have been enforced by a regular suit, that the procedure prescribed by the Code of Civil Procedure is applicable to the trial of misfeasance proceedings tot he extent they are consistent with the nature of the proceedings and that under the Code the court has no. power to summon a party to the proceedings against his will to give evidence. He sought support for his argument from section 165 of the Evidence act which empowers a judge to put questions to an witness or party before him. He further argued that it is only under section 195 or 196 of the Companies Act, that a judge has the power in winding up proceedings to summon any director or other officer of a company for examination o oath, but the power under the said sections cannot be invoked or relied upon for summoning a party against his will to give evidence in the trial of misfeasance proceedings. It was not suggested before us, either by the official liquidator or Sri A.V. Albal, learned counsel for respondent No .7, that the learned company judge exercised any powers under section 196 of the Act which relates to an order for public examination of the promoters, directors, etc., when the official LIQUIDATOR has applied to the court stating that in his opinion a fraud had been committed by any person in the promotion or formation of the company. On a perusal of the order of the learned judge it appears to us that it was not made in the exercise of his powers under section 195. The examination contemplated under section 195 is strictly a private proceeding intended to obtain information from any person concerning the affairs of the company. That power may be exercised either before or even after the institution of misfeasance proceedings. The order under appeal directs respondents Nos. 2,3,7 and 14 to appear in court" to give evidence on examination on oath in open court " . They are not summoned to give "information" as contemplated undo section 195. At the commencement of his order the learned judge states that after the completion of the examination of R.W. 4, Kekare, on the 11th March, 1963, he suggested to the learned counsel appearing before him that he had tentatively decided. to require the presence of the directors and the auditor for giving evidence on oath in open court on matters under investigation in the misfeasance application and invited them to place before him whatever circumstances they would like him to consider before making up his mind finally so as to call them.
13. After hearing the objections of the counsel, the order extracted above was made. The presence of the directors and the auditor was required for giving evidence on oath on matters under investigation in the trial of the misfeasance proceedings. The official liquidator cited some decisions of the English courts in support of his contention that a judge has the power to summon a party to give evidence in winding up proceedings. The said cases, however, are off no assistance since the power of summoning the officers of the company in those cases was exercised under section 115 of the English Companies act corespondent to section 195 of the act. Shri Karanth cited some cases of the English courts wherein it is observed that justice is best done by a judge we holds a balance between the contending parties without himself taking part in their disputations and if a judge should himself conduct the examination of witnesses,' he , so to speak, descends into the arena and is liable to have his vision clouded by the dust of the conflict." Learned counsel relied on the observations of the Court of Appeal in In re Enoch and Zaretzky Boc and Co.,'s Arbitration [1910] 1 K.B. 327, to the effect that a judge has no power to call witnesses in a civil dispute. That was a case arising out of arbitration proceedings where the award of the arbitrator had been of challenged on the ground that the arbitrator occupies a judicial position and exercise judicial powers and that a judge as no power to call such witnesses that he concerns necessary in the interests of justice has never been disputed (vide Halshury's law of England, volume 10 3rd edition, page 423, wherein the law on the question is stated thus:
"Powers of Judge:- A judge has a discretionary power to recall witness at any stage of the trial, even after the final speech for the defence, to rebut a case set up by the defence. He may also call a witness to called by either side, without their consent, if he considers it to be necessary in he interests of justice. He should not, however, call such a witness after the defence is closed except where a matter has arisen ex improvise which no human ingenuity can foresee on the part of the prison, and once the summing up is concluded no further evidence ought to be introduced tot he jury except in exceptional circumstances in favour of he defence.
14. In our country section 540 of the Code of Criminal Procedure recognizes the power of a judge to summary person as a witness or examine any person in attendance though not summoned. Un civil actions also the powers of the judge are similar. Rule 14 of Order XVT of the Code of Civil Procedure provides that the court may, at any time it think necessary to examine any time it thinks necessary to examine any person other than a party to the suit and not called as a witness by a party to the suit, of its own motion , cause such person to the summoned as a witness to give evidence, or to produce any document in his occassion. It is, therefore, clear that our Codes of Civil and Criminal procedure recognise a judge in a civil action to call as a witness any person that the judge thinks necessary. Lord Usher M.R. in Coulson v. disborough (1894) 2 Q.B. 316 observed as follows :
"If there be a person whom neither party to an action chooses to call as a witness, and the judge thinks that that person is able to elucidate the truth, the judge, in my opinion , is himself entitled to call him; and I cannot grew that such a course has never been taken by a judge before ."
15. Professor Wigmore in his Treaise not he Anglo- American System of Evidence , Volume 3rd edition, at page 268, has commented on the view expressed by the court of Appeal in In re Enoch and Zaretzky Bock and Co.'s Arbitration (1920) I K.B. 327, 332, as follows:
"It is deeply regrettable to have to not e that the English Court of Appeal in a modern case changed is view holding now that i a civil case the judge may not call a witness : In re enoch and Zaretzky bock and Co. [1910]i k.b. 327,332 approved in rex . haries [1927] 2 K. B. 327, 332 . But the reason given by L.C.J. Hewart in the latter case is astonishing . In civil case the dispute is between thee parties and the standard, but is false to the conduct and status of the english judge during the last there centaurs. It can hardly b doubt rd that before along in. he highest to the principle and down by edmund burke.
16. At page 268 Professor Wigmore concludes his discussion b stating "that a trial judge may ll a witness not called by the parties, or may consult any source of information on topics subject to judicial notice or may put additional questions to a witness called by the parties, or may ex mere motto exclude inadmissible evidence, or may take a view of a place or thing."
17. He prides stating "that the trial judge has no power to cause the evidence produced by the parties too be supplemented, never will be conceded, so long as the Bench retains a true conception of its constitutional function and a due sense of self respect."
18. On the question of the inherent power of the court to summon and to question witnesses, Professor Wigmore, at page 267, observes "that the general judicial power itself, expressly allowed in every state Constitution, implies inherently a power to investigate as auxiliary to the power to decide ; and the power to investigate implies necessarily a power to summon and to question witnesses."
19. Jones on Evidence, 5th edition, volume 4, pages 1641-42, has the following passage on the same topic:
"From early times, the common law has recognized and enforced a duty on the part of citizens and persons generally to appear in the courts and testify to such facts within their knowledge as may be necessary to the due administration of justice.
Every court having power definitely to hear and determine any suit has, by the common law, inherent power to call for all adequate proofs of the facts in controversy, and, to that end, to summon and compel the attendance of witnesses before it. The Congress of United States has implied power to subpoena witnesses and compel them to attend and give testimony which is necessary to the efficient exercise o the legislative function. Although courts have inherent power to compel the attendance of witnesses, statuary enactments commonly deal with the authority to require witnesses to attend and with the process and proceedings to compel attendance."
20. As a necessary incident of its power to adjudicate, a court of justice, within the sphere of its jurisdiction, has inherent power to compel the attendance of witnesses in proceedings before it and the giving of testimony concerning relevant facts within their knowledge. The power to investigate implies necessarily a power to summon and to question witnesses. Our rules of procedure-civil and criminal-have recognized these principles and made appropriate provisions in rule 14 of Order XVI refers only to witnesses but not to parties and, therefore, the code has not conferred any power on a judge to call a party as a witness against his will. The language of rule 14 assumes that there is an inherent power in the court to summon a party. In the absence of any statutory or constitutional bar precluding the summoning of a party by a judge, we are not prepared to accept the argument of the learned counsel that the court has no inherent power in a civil action to someone a party to give evidence in the case. Ordinarily, there may be no occasion for a judge in a civil action to summon a party as a witness against his will. But in proceedings like the winding up of a company, where proceedings are initiated by the official liquidator, who is an officer of the court, and the creditors and other officers of the company, who are the best persons to explain their conduct in regard to the affairs of the company, stay away from the witness box, it may become necessary for the court in the exercise of its inherent power to summon even a party against his will to give evidence on oath. The first ground of objection that the court has no power to summon the parties to give evidence in misfeasace proceedings, therefore, fails.
21. Re : Point Number II : The second ground of objection also, in our view, is without substance. The grievance of the appellants is that the learned judge should have noted the objections urged at the hearing and given detailed reasons for his order. The learned judge in his order starts that he invited the learned counsel appearing before him to place whatever circumstances they would like him to consider before making up his mind finally so as to call some o the directors and the auditor, for giving evidence in open court on matters under investigation in the misfeasance application, and that the order was made after hearing the counsel. The reasons for the court summoning the parties to give evidence have been briefly indicated and it is further stated that further and fuller reasons will be given in the final order, because to discuss them now is likely to embarrass one or the other of the parties during the remaining stages of the trial. IT is clear from a perusal of the order that I does not purport to be one made with the consent of the parties. The appropriate stage,to set out and deal with the objections urged at the hearing, would be when the learned judge makes the final order. In the circumstances of the case, we do not consider that the reasons given are inadequate. The appellants have a right of appeal against the final decision if it goes against them and we do not find any reason to interfere at this stage with an interlocutory order made by the learned company judge.
22. For the above reasons, this appeal fails and is dismissed. In the circumstances of the case, there will be no order as to costs.
23. Appeal dismissed.