Company Law Board
Rajinder Kumar Malhotra And Ors. vs Harbanslal Malhotra And Sons Ltd. And ... on 18 January, 1996
Equivalent citations: [1996]87COMPCAS146(CLB)
ORDER
1. Application No. 72 of 1995 has been filed by the petitioners in C. P. No. 57 of 1992 seeking the following reliefs :
(a) Permit the petitioners to cross-examine all persons who have filed affidavits in opposition before this Hon'ble Board and direct the respondents to submit to cross-examination.
(b) In the alternative if the respondents or any person who has filed affidavit in reply before this Hon'ble Board do not submit themselves for examination their affidavit ought to be disregarded.
(c) Permit the petitioners to lead oral evidences.
(d) Pass such further order/orders as this court may deem fit and proper in the facts and circumstances of the case,
2. When this application was moved by Shri P.C. Sen on April 26, 1995, Shri Sarkar, senior advocate, appearing on behalf of respondents Nos. 1 and 15 to 19 forcefully argued that the prayers in the application should not be granted inasmuch as all the pleadings have been completed and the matter has also been heard at length on many days and many other interim prayers have already been granted. He also stated that no ground for oral evidence has been established by the petitioners. In view of the stand of Shri Sarkar, we had mentioned in our order dated May 25, 1995, that our decision on this application would be given during the next hearing. However, on this date, i.e., October 30, 1995, two replies wore filed one by respondent No. 11 and another on behalf of respondents Nos. 1 and 15 to 19. In the reply of respondent No. 11, it is stated that "I say that the petition raises disputed questions of facts and oral evidence would have to be led in the present proceedings". In the same reply in para 7, it is further stated that "in the aforesaid circumstances, T submit that the petitioners should be permitted to lead oral evidence and C. A. No. 72 of 1995 be allowed only to that extent and the other relief sought for should not be granted as the similar prayer was made by the petitioners in C, A. No. 102 of 1993 and the same was not granted by order dated April 28, 1993, and have been deemed to be rejected and/or waived by the petitioners and the said reliefs are, therefore, barred by law of res judicata. In the event this hon'ble Bench deciding to dispose of the petition on affidavit then in that event and without prejudice to its rights and contentions these respondents will apply for cross-examination of the petitioners and petitioner No. 1 in particular". A more or less similar stand has been taken by the respondents in the other reply.
3. In view of the stand now taken by the respondents, the application was heard at length. While the stand of the petitioners is that petitioner No. 1 would offer himself for cross-examination, he should be entitled to cross-examine the respondents who have filed their affidavits, it is the stand of the respondents that the petitioner should subject himself not only to examination-in-chief and cross-examination, but the right of cross-examination of the respondents by the petitioners would arise only if the respondents offer themselves for examination-in-chief. In other words the contention of Mr. Chagla is that the petitioner cannot have the right of cross-examination of the respondents who have filed their affidavits.
4. Shri Sen, initiating the arguments on the application stated that this application has been moved under Order 19, rule 1 of the Civil Procedure Code. According to him since the affidavits have already been taken on record, there is no need for examination-in-chief of any one and only cross-examination is necessary. Therefore, the question to be decided is whether the cross-examination of those who have filed affidavits is to be allowed or not. The question of examination-in-chief does not arise. According to him, the provisions of the Evidence Act are not applicable to the Company Law Board as it is a Tribunal and it is to be guided by the rules of natural justice. On this proposition he relied on in Union of India v. T.R. Varma, AIR 1957 SC 882, wherein the Supreme Court has observed (head note) :
"The Evidence Act has no application to enquiries conducted by the Tribunals, even though they may be judicial in character. The law requires that such Tribunals should observe rules of natural justice in the conduct of the enquiry and if they do so, their decision is not liable to be impeached on the ground that the procedure followed was not in accordance with that, which obtains in a court of law."
5. He also stated that Section 10E(4C) clothes the Company Law Board with certain powers under the Civil Procedure Code but it does not say that the Company Law Board has to follow the procedure under the Civil Procedure Code. Drawing our attention to rule 6 of the Companies (Court) Rules, 1959, he stated that this rule specifically provides for the application of the provisions of the Civil Procedure Code to the company court while Section 10E of the Companies Act specifically provides that the Company Law Board can regulate its own procedure but while doing so would follow the rules of natural justice. Therefore, he stated that the procedure to be followed by the Company Law Board in adjudicating disputes in petitions need not be strictly in accordance with either the Evidence Act or the Code of Civil Procedure. In view of the fact that affidavits in evidence have already been taken on record, to adjudicate the matter, if a party desires to cross-examine the deponents of the affidavits, the same should be allowed. He drew our attention to page 303, Butterworths, seventh edition, to state that "the object of cross-examination is two-fold, first, to elicit information concerning the facts in issue or relevant to the issue that is favourable to the party on whose behalf the cross-examination is conducted, and, secondly, to cast doubt upon the accuracy of the evidence-in-chief given against such party". He also cited Bareilly Electricity Supply Co. Ltd. v. Their Workmen [1971] 40 FJR 360 ; AIR 1972 SC 330 and Kishinchand Chellaram v. CIT [1980] 125 ITR 713 ; AIR 1980 SC 2117, in this connection. He, therefore, requested that the prayers in the application be granted.
6. Shri I.M. Chagla, appearing on behalf of respondent No. 11, argued to say that the Company Law Board is bound by the provisions of both the Civil Procedure Code as well as the Evidence Act in its proceedings as was the case in proceedings before the company courts as per the Companies (Court) Rules, 1959. Therefore, he stated that once it is decided to try the case on oral evidence, then all the affidavits filed have to be ignored and on the basis of the oral evidence led during the proceedings alone, the issues have to be adjudicated. For this purpose, he also stated that even before deciding on taking oral evidence, issues have to be framed. Relying on B.N. Munibasappa v. Gurusiddaraja Desikendra Swamigal, AIR 1959 Mys 139, Shri Chagla stated that the court cannot under rule 2 of Order 19 of the Civil Procedure Code direct the parties to give evidence upon an application filed by the affidavit. An order under rule 1 of Order 19, is permissible under exceptional circumstances. Taking us through Chapter X of the Evidence Act, Shri Chagla stated that it is for the petitioners to first introduce witnesses for examination-in-chief with a right to the respondents to cross-examine those witnesses and in case the respondents wish to introduce any witnesses for oral evidence, the right of cross-examination of the petitioners would be restricted to only those witnesses. Referring to Bai Zabu Khima v. Amardas Balakdas, AIR 1967 Guj 214, in which the court observed (at page 218) :
"Though there may be no provision in the Code authorising the court in a case such as this to take the evidence in examination-in-chief of the witnesses by affidavit, it is always open to the parties to agree that a particular affidavit may be treated as evidence in the case ..."
7. Shri Chagla stated that even if the affidavits are taken as evidence, even then the petitioner will have to be examined in chief. He supple-mented this argument by citing 29 B.L. Nag 1392 to state "it is the bounden duty of a party, personally knowing the whole circumstances of the case, to give evidence on his own behalf and to submit to cross-examination. His non-appearance as a witness would be the strongest possible circumstance going to discredit the truth of his case". He also referred to Smt. Sudha Devi v. M.P. Narayunan, AIR 1988 SC 1381, 1383, to state that "Besides, affidavits are not included in the definition of 'evidence' in Section 3 of the Evidence Act and can be used as evidence only if for sufficient reason the court passes an order under Order 19, rule 1 or 2 of the Code of Civil Procedure." He, therefore, stated that unless otherwise the petitioner subjects himself to chief .examination, affidavits filed by him cannot be treated as evidence for deciding the matter. He also referred to AIR 1988 SC 138 (sir) to state that "in judicial proceedings, evidence must be adduced by calling witnesses and affidavits cannot be filed unless permitted by law, or order of court."
8. Shri Chagla stated that the main purpose of the application for the cross-examination of the respondents is to establish the case of the petitioner which is not permitted under law. According to him, as decided in R. Ramanathan. Chettiar v. A. and F. Harvey Ltd. [19671 37 Comp Cas 212 (CT) (headnote), "it is necessary for a petitioner under Section 397 of the Act to make all the essential allegations in the petition itself so as to bring his case within the ambit of the section. Lack of essential allegations cannot be made good by leading evidence". On this proposition, he also relied on Mohta Bros. (P.) Ltd. v. Calcutta Landing and Shipping Co. Ltd. (1970] 40 Comp Cas 119 (Cal).
9. On the aforesaid premises, Shri Chagla stated that in so far as the prayers in the application are concerned, prayer (c) alone should be granted and other prayers should be rejected.
10. Shri S. B. Mukherjee, appearing for the respondents, stated that in para 5 of the application, the petitioners have stated that the purpose of cross-examination of the respondents is for the purpose of establishing the allegations made in the petition which the respondents have denied. It is for the petitioners to prove their case and they cannot just because the respondents have denied the allegations, call them to the witness stand and try to prove the petitioners' case. The onus of proving the allegations squarely rests on the petitioners through pleadings but not by way of cross-examination. Going through Orders 6, 7, 8, 9 and 10 of the Code, he stated that the allegations have to be substantiated in the pleadings and cannot be done indirectly. He also supported the plea of Shri Chagla to state that if at all oral evidence is to be taken, it can be done only after issues are framed. He further stated that if oral evidence is to be taken, then it should be strictly in accordance with the Evidence Act and the Civil Procedure Code as specifically provided in Section 10(4C).
11. Shri Sarkar, appearing for the respondents, opposed the application. He stated that the prayer for cross-examination was already made in C. A. No. 102 filed on April 2, 1993, and, afterwards, many hearings have taken place and certain orders on other prayers made had already been issued. Therefore, it should be deemed that the prayer for cross-examination had already been rejected by the Company Law Board or the petitioners have already waived that particular prayer. On this proposition, he relied on in Shorab Merwanji Modi v. Mansata Film Distributors, AIR 1957 Cal 727, wherein the court observed that if the relief prayed for is not granted it must be deemed to have been refused. Citing Satyadhyan Ghosal v. Smt. Deorajrn Debi, AIR 1960 SC 941, he stated that since the prayer has not been granted, the same cannot be again prayed for as it would amount to res judicata in the same proceedings. According to him, it is for the petitioners to prove their case and this cannot be done by cross-examination of the respondents. On this proposition, he cited in Hardayan Garodia v. Gongadhar Periwal, AIR 1963 Cal 500, wherein the court observed (headnote) :
"A fact not admitted in the pleadings must be proved and it is not permissible for the plaintiffs to contend that they were mislead is not tendering proper evidence in proof of that essential fact."
12. He argued that the court cannot fix its procedure and is bound by the relevant law on the subject, namely, the Code and the Evidence Act and cannot compel a party to examine any particular witness in Municipal Corporation of Greater Bombay v. Lala Pancham, AIR 19G5 SC 1008.
13. Replying in the arguments of counsel for the respondents, Shri Sen stated that the affidavits have already been filed by all the parties to the proceedings and they have also been taken on record and so far the proceedings have gone on the basis of the affidavits. It is the bounden duty of the court to test the veracity of these affidavits and it can be done only by way of -cross-examination. As the courts have categorically held that the Code and the Evidence Act are not applicable to proceedings before a Tribunal like the Company Law Board, the Company Law Board need not be bound by the provisions of these Acts. He specifically drew our attention to Section 1 of the Evidence Act to state that this Act is not applicable to Tribunals. He referred to Regulation 14 of the Company Law Board Regulations and stated that as per Sub-regulation (5), the affidavits itself should be treated as affidavits in evidence and there is no need for ignoring the affidavits, as suggested by Shri Chagla for proceeding with oral evidence. He stated that all the cases cited by the advocates for the respondents deal with regular suits wherein the procedure to be followed has to be strictly in accordance with the Code and the Evidence Act. But as far as the proceedings before the Company Law Board are concerned, it has to follow the principles of natural justice as has been held in Union of India v. T.R. Varma, AIR 1957 SC 882. He refuted the arguments of Shri Sarkar and stated that C.A. No. 102 has not been disposed of by any order of the Company Law Board. It is still pending. Therefore, the question of res judicata does not arise. According to him, the case cited by Shri Sarkar in AIR 1987 Cal 272 (sic) is not applicable. He further stated that he is prepared to abide by any procedure fixed by the Company Law Board regarding the order for cross-examination. If necessary he stated that he is prepared to put petitioner No. 1 in the witness stand for cross-examination by the respondents, before proceeding with the cross-examination of the respondents.
14. Shri Chagla again argued for the respondents and stated that it is not correct to say that the Evidence Act is not applicable to the Company Law Board. According to him, in Section 1 of the Evidence Act, there is nothing to indicate that this Act is not applicable to Tribunals, while a specific provision has been made that it is not applicable to the proceedings before an arbitrator. He also stated that the Supreme Court has held in CIT v. Ajanta Electricals [1995] 215 ITR 114 ; [1995] (Suppl.) 4 SCC 182 that the Income-tax Appellate Tribunal is a court and the Evidence Act is applicable to it. Going through the Company Law Board Regulations 11, 12, 13 and onwards, he stated that there is nothing in the Company Law Board Regulations unlike the Companies (Court) Rules, 1959, which specifically states that the proceedings would be governed by the Code. In the absence of any specific provision in the regulations regarding the procedure to be followed by the Company Law Board, it has to be taken that the procedure as per the Code will be followed by the Company Law Board in its proceedings. He further stated that even the Supreme Court has held that the Company Law Board is a court in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 (SC) ; [1995] 2 CLJ 250. Therefore, the procedure as in the Code and the Evidence Act has to be strictly followed in these proceedings.
15. We have considered the arguments of counsel. While the prayer of the petitioners is for cross-examination of all the respondents who have filed their affidavits, it is the case of Shri Chagla, appearing on behalf of the respondents, that this prayer should not be granted and if the petitioner desires he may be allowed to lead oral evidence and in such case the provisions of the Evidence Act and the Code of Civil Procedure should be followed. As far as Shri Sarkar and Shri Mukherjee are concerned, the application should not be allowed at all and if allowed, then the proposition of Shri Chagla should be accepted.
16. Even though the main thrust of the arguments of counsel related to the applicability of the procedure envisaged under the Evidence Act and the Civil Procedure Code in respect of oral evidence, yet during the arguments Shri Chagla pointed out that in the absence of any provision in the Company Law Board Regulations regarding the procedure to be followed by the Company Law Board, the Company Law Board should, in its proceedings be guided by the practice and procedure of a company court as provided in rule 6 of the Companies (Court) Rules, 1959. It is relevant to extract this rule as follows :
"Practice and procedure of the court and the provisions of the Code to apply.-Save as provided by the Act or by these rules the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these Rules."
17. In view of this Shri Chagla stated that in the proceedings before the Company Law Board in the absence of any specific provision in the Company Law Board Regulations, procedure as per the Code should be adopted. We are unable to agree with this proposition. Even rule 6 of the Companies (Court) Rules, 1959, starts with the proviso that "save as provided by the Act" to show that in the absence of any provision in the Act, i.e., the Companies Act, regarding the procedure to be followed, the procedure of the court and the Civil Procedure Code are to be applied. But Section 10E of the Act under which the Company Law Board derives its jurisdiction specifically mentions in sub-clause (5) as follows :
"Without prejudice to the provisions of sub-sections (4C) and (4D), the Company Law Board shall in exercise of its powers and the discharge of its functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion."
18. Therefore, the Act itself very specifically provides for the procedure to be followed by the Company Law Board in its proceedings, i.e, the Company Law Board will be guided by the principles of natural justice and shall act in its discretion. The absence of any provision in the Regulations in this regard does not make any difference inasmuch as the Regulations are subordinate to the Act.
19. Further the Act also empowers the Company Law Board to regulate its own procedure, vide Section 10E(6) and the Company Law Board has framed its own regulations. Thus the practice and procedure of the Company Law Board will have to be within the framework of the principles of natural justice and the Company Law Board Regulations. In view of this, the question of applicability of the Evidence Act and the Code to proceedings before the Company Law Board does not arise.
20. This principle of adherence to natural justice while adopting certain procedures by Tribunals has been commented upon appropriately by the Supreme Court in Union of India v. T.R. Varma, AIR 1957 SC 882, as cited by Shri Sen in his arguments. In fact in that case the Supreme Court has specifically stated that the Evidence Act has no application to the Tribunals even though they may be judicial in character. We find a similar observation of the Supreme Court very recently with regard to the applicability, of the Civil Procedure Code to proceedings under the Income-tax Act. This observation is found in the very case cited by Shri Chagla, CIT v. Ajanta Electricals [1995] 215 ITR 114 (SC); [1995] 4 SCC 182. This further affirms our conviction that so long as our procedures meet with the test of natural justice, the decision is not liable to be impeached on the ground that the procedure followed was not in accordance with that which obtains in a court of law. With regard to the contention of Shri Chagla that the Company Law Board is a court, and citation of the Supreme Court decision in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 ; [1995] 2 Comp LJ 250, in this regard, we may record that the observation of the Supreme Court is in a different context with reference to a particular statute and does not fit into the present context. Apart from these two Supreme Court cases cited by counsel, the rest of the citations relate to the principles to be followed in suits. As such they are not of immediate relevance to us.
21. Coming back to the application under consideration, the prayers therein have already been extracted earlier. There are two replies to the application--one by respondent No. 11 and another by respondents Nos. 1, 15 to 19. While as per the reply of respondent No. 11, in case the Company Law Board decides to proceed with affidavits, then the respondents should be allowed to cross-examine the petitioners, as per reply filed by other respondents, in case petitioner No. 1 fails to lead oral evidence, the petition should be immediately dismissed. In view of this submission we would like to take this opportunity of examining whether it is at all necessary in proceedings under Section 397/398 of the Act to resort to taking oral evidence. As pointed out by Shri Sen during the arguments and as we ourselves have seen from hundreds of cases that have been cited before us in these last four years on similar proceedings in various High Courts, very rarely the practice of taking oral evidence has been followed. As a matter of fact during the last four years of ourselves dealing with similar petitions, we never felt the need to take oral evidence. When we examined why it is so, we found the reason simple and obvious. The proceedings under these sections relate to oppression and mismanagement in the affairs of a company. The functioning of a company is governed by various provisions of the Companies Act as well as its memorandum and articles. Practically every decision of a company is documented either by way of resolution passed by the board of directors or by the general body. The ambit of powers vested in the board is governed by the provisions in the articles and in the memorandum. Every expenditure incurred by the company is accounted for and audited by the statutory auditors. In other words, practically every alleged act of oppression and mismanagement can be traced back to the documents available with the company most of which are also to be statutorily filed with the Registrar of Companies. The Act also provides, in a number of instances, where presumptions could be drawn on the basis of existence/non-existence of connected documents with the company. Thus, the allegations of oppression and mismanagement could easily be adjudicated on the basis of the various provisions of the Act, the articles and memorandum of association of the company as well as the documentary evidence available. This is perhaps the reason why the need for oral evidence had not been felt necessary in proceedings under these sections. Even in a couple of cases where we permitted oral evidence, it arose, out of the need to examine third parties who were not parties to the proceedings but whose evidence was considered necessary, in the facts and circumstances of those cases. In one of those cases the issue arose out of certain contradictory statements by third parties which had bearing on the issues involved. The petitioner desired to file an affidavit in evidence in that connection which was objected to by the respondents. As an alternative the petitioner himself offered to tender oral evidence and submitted to cross-examination by respondents' counsel which was permitted. Therefore, we are of the view that where the parties have been impleaded in a petition and they have the opportunity of filing their replies, with further facility of filing rejoinders and surrejoinders, it would not be necessary, as a rule, to call these parties to lead oral evidence or subject themselves to cross-examination.
22. The prayer for cross-examination as is evident from the application is for the purpose to establish that the company is a family concern, that respondents Nos. 15 to 19 who are the directors of the company are working under the control of respondents Nos. 2 and 3 and that there is manipulation in the accounts of the company and that there has been siphoning of funds of the company. Since all these allegations have been denied by the respondents, they should be called for cross-examination. The respondents who stoutly objected to this application initially, now through their replies desire that the petitioners particularly petitioner No. 1 should be called for oral evidence as well as subject himself to cross-examination. The reason for the change of mind of the respondent, as could be seen from the reply, is that petitioner No. 1 had made contrary statements on oath in various other proceedings and as such his statement in affidavit in the present proceedings cannot be accepted in evidence. A large number of affidavits by way of replies, rejoinders, surrejoinders, and sur-sur-rejoinders have been filed in these proceedings covering all the matters for which oral evidence/cross-examination has been sought. For every statement made in a particular affidavit, a further affidavit by way of reply has been filed. In other words, there is enormous material available before us to consider the merits of various allegations.
23. Further, as rightly pointed out by Mr. Sarkar, the petitioners had in fact filed an application for cross-examination at the initial stages of the proceedings. Along with this prayer they had also made further prayers, some of which we granted. During the long period of nearly two years, even though there were further proceedings before us, the petitioners never reiterated their prayer regarding cross-examination leading to the presumption that they had abandoned their prayer. As a matter of fact one of the interim orders passed by us on an application of the petitioner during this period even went up to the Supreme Court. Therefore, at this late stage when we have fixed the dates for final hearing, we do not consider it necessary to either record oral evidence or allow anyone to be cross examined.
24. However, the Company Law Board has powers under Section 10E(4) of the Act to order discovery of documents and examining witnesses on oath. Thus, should we, at any point of time consider that on the basis of the affidavits no conclusion can be drawn, we shall, on our own, call such of those petitioners or respondents to depose in person before adjudicating on the allegations.
25. In view of the foregoing, we do not propose to entertain the application and as such the same stands dismissed.