(1.) THIS is an appeal from an order of Mr. Justice Bhagwati making an order for the public examination of Sir Fazal Ibrahim Rahimtoola on a summons taken out by the official liquidator of the Associated Banking Corporation of India, Ltd. , under Section 196 of the Indian Companies Act.
(2.) THE order is contested by Sir Jamshedji mainly on two grounds. THE first ground is that the order made was without jurisdiction. Now, jurisdiction of the Court to make an order for the public examination of a directorand Sir Fazal was a director of the company with which we are concerned in this caseis founded on Section 196 of the Indian Companies Act. That section provides that "when an order has been made for winding up a company by the Court, and the official liquidator has applied to the Court stating that in his opinion a fraud has been committed by. . . ", then the section goes on to state the class of persons who might be guilty of fraud, and then it goes on, "the Court may, after consideration of the application, direct that any person. . . ", and then it sets out the same class of persons which are mentioned earlier in the section. THEre is another section to which attention might be drawn in order to understand Sir Jamshedji's contention, and that is Section 177b. Sub-clause (2) of that section provides: (2) THE official liquidator may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was formed and whether in his opinion any fraud has been committed by any person in its promotion or formation or by any director or other officer of the company in relation to the company since the formation thereof, and any other matter which in his opinion it is desirable to bring to the notice of the Court. Briefly put, Sir Jamshedji's argument is this that the statutory jurisdiction of the Court can only be invoked after the official liquidator has made a report under Section 177b (2) and the Court can only make an order under Section 196 after taking into consideration the report made by the official liquidator. Sir Jamshedji says that the jurisdiction of the official liquidator to make a report is based upon Section 177b (2), and he having made that report, it is for the Court to consider it and then proceed to decide whether any particular person should or should not be publicly examined.
(3.) NOW, to say the least, this particular Bank that was set up was run in a most extraordinary and curious manner. It seemed more to be a domestic family affair than a public corporation looking after the interests of the shareholders and the depositors. The majority of the shareholders were all relations. At the head of the tree stood Cassumally Munjee with his sons, his son-in-law, the father-in-law of his son, Sir Fazal Rahimtoola, and the liquidator in his report clearly states that the affairs of the Bank rested exclusively with Cassumally Munjee, his said two sons, his son-in-law Mahomedally Javeri, and Sir Fazal Rahimtoola. Then the liquidator goes on to point out various gross cases of fraud which came to light after the company went into liquidation. He points out that the Munjees and their allied concerns are indebted to the Bank in the sum of Rs. 13,00,000 and there is also a prospective liability for calls of about 6j lacs, and he adds that the Munjees have dominated the Bank and they have literally played ducks and drakes with the moneys of the Bank which they have advanced to themselves and their allied concerns without any intention to repay the same. He then points out the case of a loan of 38 lacs being advanced to Shiraj Ali Hakim and his relative Gulam Mahomed Ebrahim. This loan was advanced on so-called securities which were not worth the paper on which they were printed. Then he deals with the case of a fixed deposit of Rs. 5 lacs made by Messrs. Kardar Productions. It seems that on this fixed deposit Kardar Productions were allowed to have an overdraft account. Then he was persuaded by the Munjees to transfer the fixed deposit of Rs. 5 lacs to one of their own concerns and to replace this fixed deposit a guarantee was given by one of their firms. On that the Bank was left with the paper guarantee of one of the Munjee concerns and the hard cash of Rs. 5 lacs disappeared from the Bank and went to fill the till of the Munjee concerns. Then there is another instance of this Shiraj Ali Hakim having pledged with the Bank 62,500 shares of the Famous Cine Laboratory and Studios, Ltd. , against a loan given to him. Subsequently lie was allowed to remove these securities and he handed over these securities to another creditor of his, Govindram Rungta. So the Bank was left without any security to secure this particular loan.