The Rajahmundry Elec... v. Addepalli Nageswara ...

Subba Rao, C.J.:-

(1) This is an appeal against the judgment of our learned brother, bhimasankaram, j. , appointing two joint administrators for a period of six months tentatively giving them all powers of management which vest in the board of directors of the rajahmundry electric supply corporation, ltd.

(2) The rajahmundry electric supply corporation (hereinafter called the company) is a private limited company and was incorporated under the indian companies act, 1913, in the year 1925. The registered office of the company is at rajahmundry. The nominal capital of the company is rs. 4,00,000 divided into 4000 shares of rs. 100 each. Of these, 2813 ordinary shares and 100 preference shares are fully paid up. The total number of shareholders is 545. The objects of the company are to generate and supply electric energy and to stock and sell electrical accessories and machinery and to do other things set forth in the memorandum of association. Under the articles of association, the affairs of the company are managed by a board of directors consisting of a chairman, a vice - chairman and other directors. The directors are elected at the general body meeting. The board of directors have also power to co - opt another director if a vacancy is caused by death, resignation or otherwise. At the first ordinary meeting of the company all the directors shall retire from office and at the ordinary meeting in every subsequent year, one third of the directors for the time being shall retire from office. The general managment of the business of the company shall vest in the chairman and vice - chairman or the managing director for such period as is resolved by the directors. There is a secretary, who is a paid servant of the board, working under its direct supervision. All books and accounts of the company shall be maintained and kept by the secretary at the registered office of the company and may be inspected by any of the directors at any time. They shall be checked and initialled by the managing officer at least once in a month. The first board of directors consisted of some of the influential members of the locality and the management of the company was carefully conducted without any rift or trouble. The 3rd respondent ramamohana rao had been the director of the company from about the year 1940. He was vice - chairman from 31st march, 1953. He resigned his vice - chairmanship on 9th january, 1955 and he was removed from the office of director on 26th march, 1955, at a general body meeting. The 2nd respondent has been a director from the year 1942. He was vice - chairman from 1951, and has been chairman from 31st march, 1953. The 4th respondent has been director from about 1940. He was appointed as vice - chairman on 18th january, 1955, but it is said that he was removed from office on 15th august, 1955. The other respondents are also directors of the company. But it is said that respondents 5 and 7 lost thier share qualification and therefore ceased to be directors, that the 8th respondent died in august, 1955 and that the 9th respondent ceased to be a director by his absence from consecutive meetings. The petitioner, one of the shareholders of the company, filed o. P. No. 3 of 1955 on the file of this court under section 162 (v) and (vi) and section 153 - c of the indian companies act either for winding up the company or, in the alternative, for taking action under section 153 - c. He alleged in the petition that he had obtained the consent of 80 shareholders, i. E. , more than no of the total number of shareholders. He made grave and serious allegations against the 2nd respondent, the chairman and the 3rd respondent, the erstwhile vice - chairman and alleged that the affairs of the company were being conducted in a manner oppressive to the petitioner and the other share - holders and that the present management, relying on brute majority are ruling despotically. The company represented by the 4th respondent, who was the vice - chairman at that time, filed a counter throwing most of the blame on the 3rd respondent and stating that, after he became vice - chairman, steps were being taken for improving the affairs of the company. The 2nd respondent in his counter - affidavit threw the entire blame on the 3rd respondent, the then vice - chairman. He alleged that as chairman he had very little to do with the day - to - day administration and that the entire management was entrusted to the 3rd respondent who, according to him, came of a very highly respectable family in andhra being the son of the late devata sriramamurthi, a well - known congressman. The stand taken by him is expressed in the following statement in his. Counter :

"thus i stale that except the 3rd respondent, who was in sole charge of the management of the company, myself and the other directors of the company left the entire thing to the management of the 3rd respondent having implicit faith in him and having no reason whatsoever to believe at any time before end of last calendar year that there is anything wrong with the affairs of the company."

(3) He proceeded to deny the specific allegations made againt him in the petition. It is suggested that the petition was filed as a counterblast by the petitioner, who was a close friend and well - wisher of the 3rd respondent for the specific purpose of taking away the management of the company from the hands of the present directors. The 3rd respondent, in his counter, supported the petitioner and agreed with him that, in the interests of all concerned, interim administrators should be appointed. He would say that, after his resignation, the 2nd respondent and his friends have been making desperate attempts to extricate themselves and to fasten liability for their misdeeds on him. According to him, the chairman was also the treasurer of the company and was solely in charge of the funds of the company and he was alone authorised to operate on the bank's accounts and to issue cheques, etc. He denied the specific allegations made against him in the petition. The 9th respondent filed a separate counter supporting the petitioner and stating that it was necessary that an order appointing an interim administrator should be made immediately to take over the entire management of the company. The 5th respondent adopted the counter filed by the 9th respondent.

(4) On 14th june, 1955, bhimasankaram, j. , with the consent of the counsel in the case, appointed three shareholders of the company, two of them being the petitioner and the 4th respondent, who was then the vice - chairman, as commissioners with power to examine all the accounts available with the company and to obtain reliable information from those in management of the business of the company. The commissioners made a thorough enquiry and submitted a unanimous report dealing with each individual head of charge stated in paragraph 15 of the petition. After the submission of the report, the and respondent filed another affidavit stating among others that the report was one - sided and had been written ex parte without calling upon him for any explanation whatsoever. Respondents 6, 7 and 8 also filed a counter - affidavit stating that the said report did not bind them and the other directors. Meanwhile, the 4th respondent, presumably at the instance of the 2nd respondent, was removed from vice - chairmanship from 15th august, 1955. Thereafter, he filed another counter - affidavit on the basis of the further knowledge he had acquired of the working of the institution in the course of his investigation. The learned judge in a carefully written judgment considered the various charges levelled against the respondents in the light of the commissioners' report and the explanation offered in the counter - affidavits and came to the prima facie view that the affairs of the company were in a muddle and that they should be remedied by drastic action. The learned judge was also of the view that the general body was clearly apathetic or was being deliberately misled and that there was little doubt that at the present moment a powerful local " junta was ruling the roost. " the learned judge held that a case had been made out for winding up the company, but, as it would unfairly prejudice the interests of the company if it is wound up, he exercised his powers under section 153 - c and appointed two administrators for a period of six months tentatively giving them all powers of management which vest in the board of directors under the articles of association. He also directed them to call for a general body meeting before the expiry of six months to record its opinion whether the administrators should continue or whether they would elect a new board of directors for the management of the affairs of the company. The 1st defendant preferred the above appeal. Before we consider the merits of the appeal, it may be convenient, at the outset, to dispose of some of the preliminary points raised by sri d. Suryaprakasa rao, the learned counsel for the appellant.

(5) The first objection is that, in the notice published under the indian companies act, the fact that a petition was filed for an order under section 153 - c was not mentioned. But a perusal of the notice shows that that fact was also clearly mentioned and, therefore, there are no merits in this contention. It is then said that the petitioner has no locus standi to file the petition inasmuch as he had not obtained the consent in writing of not less than 1/10 in number of the members. The petitioner, in his petition, has clearly stated that he had obtained the consent of 1/10 of the members. Before the learned judge, this objection was not raised. As there was a conflicting version on the question whether this point was raised or not before the learned judge, we requested bhimasankaram, j. , to state whether the point was argued before him. The learned judge replied that the point was not at all argued before him. We unhesitatingly accept his statement and reject this contention raised for the first time before us. Learned counsel then contended that however wide the scope of section 153 - c may be, it does not confer power on the high court to interfere with the internal management of the affairs of a company and, in any view, to make an order after the company's affairs ceased to be conducted in the manner prescribed under the section. Stated briefly, his contention is that the allegations made in the petition as regards the mismanagement of the company's affairs related to an earlier period and that, at present, there is no mismanagement and, therefore, the section cannot be invoked. To appreciate his argument, it would be convenient to read the relevant provisions of the section.

"section 153 - c. : (1) without prejudice to any other action that may be taken, whether in pursuance of this act or any other law for the time being in force, any member of a company who complains that the affairs of the company are being conducted : - (a) in a manner prejudicial to the interests of the company, or (b) in a manner oppressive to some part of the members (including himself) may make an application to the court for an order under this section. (4) if on any such application the court is of opinion - (a) that the company's affairs are being conducted as aforesaid and (b) that to wind up the company would unfairly and materially prejudice the interests of the company or any part of its members, but otherwise the facts would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. The court, may, with a view to bringing to an end the matters complained of, make such order in relation thereto as it thinks fit. (5) without prejudice to the generality of the powers vested in a court under sub - section 4, any order made under that sub - section may provide for"

(6) This section is based upon section 210 of the english companies act, 1948, but there are material differences between the provisions of this section and that of section 210 of the english act. No useful purpose would be served by referring to the provisions of that section or the case law bearing on that section. No decision on the interpretation of section 153 - c has been placed before us. This is obviously intended to confer alternative power on a court to make suitable orders without winding up the company in a case where the facts justify the making of a winding up order but where the making of it would unfairly and materially prejudice the interests of the company or any part of its members. This power will be exercised on an application filed by a member of the company with the consent of the requisite number of share - holders, alleging that the affairs of the company are being conducted in a manner prejudicial to the interests of the company or in a manner oppressive to some part of the members. The court may also exercise this power on an application made by the central government. The court, before exercising the power, shall be satisfied that the company's affairs are being conducted as aforesaid and that a case has been made out for winding up the company on the ground that it is just and equitable to do so. After making up its mind on the aforesaid two questions, for the purpose of bringing to an end the matters complained of, instead of winding up the company, the court can make suitable orders. The power under this section is, therefore, very comprehensive. If the conditions laid down are satisfied, the court can exercise this power by making suitable orders to put an end to the matters complained of. What are suitable orders would depend upon the circumstances of each case. No doubt, sub - section 5 enumerates the various powers the court can exercise under this section. But they are obviously not exhaustive as those powers are without prejudice to the generality of the powers vested in a court under sub - section 4. The nature of the order to be passed by a court, therefore, depends upon the state of mismanagement and the nature of the restrictions required to put an end to that mismanagement.

(7) Learned counsel contended that a court cannot interfere with the internal management of a company as there are various sections in the companies act providing for remedies in the case of defects in the internal management of a company, i. E. , by calling for a general body meeting, by appointing inspectors, etc. See section 48 of table a of the first schedule and sections 78, 79, 139 and 142. In support of this contention, reliance is placed upon the decision of chandy v. Pugh, a. I. R. 1924 cal. 598.

(8) Therein, the learned judges extracted a passage from foster v. Foster, l. R. (1916) 1 ch. 532. Which reads : "it is an elementary principle of the law relating to joint stock companies that the court will not interfere with the internal management of companies acting within their powers and in fact has no jurisdiction to do so. " to the same effect is the following passage in halsbury's laws of england, lord simond's edition, vol. 6, page 418 : "the court has no jurisdiction to interfere with the internal management of companies acting within their powers. "

(9) It is no doubt true that so long as a company is not wound up, a court will not interfere withe the internal management of that company. But the decisions cited above and similar decisions have no bearing when the court is called upon and when it interferes in exercise of its powers under section 153 - c of the act. The power conferred under that section is exercised in cases where the companies can be wound up. Instead of resorting to the drastic remedy of winding up, the court, without liquidating the company, is given very wide powers to pass all orders necessary for putting an end to the mismanagement. Its power is only conditioned by the provisions of section 153 - c and can be exercised to bring to an end matters complained of. We cannot import into the section limitations under which the court acts in a case not governed by the section. The court no doubt exercises that power reasonably and only when necessity arises. But we cannot restrict it in the manner suggested by learned counsel. Learned counsel then pursued a line of argument in an attempt to exonerate the second respondent from any share in the misappropriation of funds. Before we apportion the blame for the sorry state of affairs discovered in the management of this company, it would be necessary to know the results of the management by the directorate in may, 1955. The committee appointed by bhimasankaram, j. , found the following facts : " (1) arrears due to government as on 25th june, 1955, were rs. 3,10,175 - 3 - 6. (2) the amount due to be recovered from consumers was rs. 2,09,566 - 9 - 3. (3) under the suspense account, about rs. 48,933 - 8 - 0 was drawn by the 3rd respondent in his personal capacity from 1st april, 1954 to 3rd december, 1954 and it was not repaid. (4) gash shortage of rs. 11,000 was detected in december, 1954 and the accounts show that it was taken by the 3rd respondent. (5) 3,58,751 units of electric energy were not accounted for in 1953 - 54, and 3,72,459 units of energy were not accounied for in 1954 - 55. (6) though the corporation was purchasing annually about 21,00,000 units of energy at three annas per unit for general consumption and sells them at more than seven annas per unit, a dividend of three percent, alone was declared and there are no surplus funds. (7) engines nos. 1 and 3 are not working. There is no record to show what amount was settled as payable for repairs. Although the engine has not been working from the year 1949, periodical sundry expenses ranging from rs. 100 to rs. 500 have been shown as spent towards repairs and on enquiry it was found that most of the repairs undertaken by the company were non - existent. (8) the cash book for 1951 - 52 contains visible alterations and several pages from the ledger appear to have been removed. There is expenditure without proper and valid vouchers for the years 1951 to 1954. There is practically no internal check. There are may other defects in the account books particulars whereof are given in the report. (9) the expenditure has risen when it should have gone down after the corporation practically had given up generating energy and purchasing it from the government. The members of the committee appointed by the learned judge to go into the question have scrutinised the accounts, made other enquiries and submitted an exhaustive report disclosing the above facts among others. The learned judge carefully considered each one of the items in the light of the explanation given by the contending parties and prima fade accepted the conclusions arrived at by the committee. No useful purpose would be served by our restating the objections and the conclusions arrived at by the learned judge in regard to the misconduct of the third respondent for, after going through the findings of the committee, the objections raised by the parties and the conclusions arrived at by the learned judge, we are inclined to hold that prima facie the conclusions arrived at by the learned judge are justified on the material placed before us. Indeed, learned counsel for the appellant did not question the findings arrived at against the 3rd respondent. He attempted to explain away the other defects found by the committee by stating that he was not given an opportunity and that if such an opportunity was given, he would have conclusively established the circumstances that prima facie appear to be against the appellant. But, as we have already pointed out, he was given an opportunity to file a counter - affidavit after the committee's report and there is nothing on record to show that he asked for a further opportunity which was denied to him by the learned judge. Learned counsel further attempted to produce before us other evidence to show that subsequent to may, 1955, the arrears have been reduced. We do not think we are justified in allowing the appellant to rely upon facts which he had an opportunity to place before the learned judge but of which he did not avail.

(10) Learned counsel contended that the shortage found in electric energy was due to the natural causes and, in support of that contention, he sought to rely upon the book " electrical engineering " by the american technical society, which gives the general averages in regard to shortages due to natural causes that will always be found in the case of transmission and distribution of energy. We are not satisfied that the statistics pertaining to shortages in electrical energy given in the aforesaid book can be adopted to shortages found in the distribution of energy in a small area. Further we cannot act on the material for the first time sought to be placed before us.

(11) The main contention of the learned counsel is that the and respondent and the directors other than the 3rd respondent are not really responsible for the present condition of the company. So far as the 2nd respondent is concerned, the relevant facts are : he is not new to the company. He has been the director of the company from 1942, vice - chairman from 1951 to 1953 and chairman from 1953. During practically the same period, the 3rd respondent was also occupying important positions. He was director from the year 1940, vice - chairman from 31st march, 1953 upto january, 1955, when he resigned and continued to be director till 26th march, 1955, when he was removed by the general body. The 2nd respondent has, therefore, direct knowledge of the working of the administrative machinery of the company. He must also be in the know of the articles governing the company and the powers conferred thereunder on the various bodies. With this background, he says in his counter that as chairman he and the other directors of the company left the entire thing to the management of the 3rd respondent having implicit faith in him. The question arises whether a chairman of a company, who is also the treasurer and in whom the administration of the company is vested under the articles, can escape liability by stating that he entrusted the entire management to another and, therefore, he is not responsible for the extensive acts of misappropriation committed by the vice - chairman ? his conduct in ignoring the duties enjoined on him by the articles and thereby enabling another to misappropriate amounts to the tune of rs. 60,000 would ordinarily amount to gross negligence on his part. The learned counsel explains that the practice of the company is to entrust the entire administration to the vice - chairman and that the chairman's duty is only to preside at meetings and to issue cheques on the basis of pay orders issued by the vice - chairman. To establish this practice, except the affidavit filed by the company, there is nothing else on record. Even, if ordinarily that practice is followed, we find it very difficult to exonerate the chairman, who has had sufficient experience in the administration of this company from entire blame. We do not propose in this appeal to apportion the legal liability between the chairman and the other directors for that question falls to be decided in appropriate proceedings. For the purpose of this appeal, we cannot say that he is not negligent in discharging his duties. Now we shall proceed to take each of the definite acts of misconduct attributed to the chairman. Telephone bills to the tune of rs. 4,000 relating to the private business transactions of the family firm of the present chairman have been debited to the corporation account.

(12) In the company's counter, it is stated that the second respondent will be answerable to the corporation if, on an investigation of the allegations made against him in the petition, he is found liable. The and respondent, in his counter, states that the telephone was during that time exclusively and mostly used for the business of the company and the matter was entered in the books of the company and there was no secret about it at all. He also says that the auditors did not take any objection and the accounts were also passed by the general body. Without prejudice to his contentions, he offered to deposit the said amount in court and fight out his right in regard thereto elsewhere. The committee, their report, states that telephone bills relating to phone no. 61 belonging to sri appana subrahmanyam and sons, the present chairman's family firm, amounting to rs. 4,925 - 12 - 0 have been paid out of the corporation funds. It also appears from the report that, during the period the 2nd respondent was vice - chairman, telephone bills amounting to rs. 2,390 - 15 - 0 for the phone of the 3rd respondent, who was then one of the directors of the corporation, have been sanctioned by mr. Ranga rao. When the 3rd respondent was vice - chairman another sum of rs. 1,904 - 6 - 0 was paid towards his telephone bills. He also sanctioned bills of the chairman's private phone. In the report, details of the amount spent towards trunk calls of respondents 2 and 3 are given. In the further affidavit filed by the 2nd respondent after the report, no further explanation was given in regard to the trunk calls. As the telephone bills relate to phone no. 61 belonging to sri appana subrahmanyam and sons, the present chairman's family firm,prima facie, unless it is explained by proper vouchers, the trunk calls must be assumed to have been made for the business of that firm. Further, it is not apparent why the company should have spent so much amount on trunk calls. Learned counsel for the appellant suggests that, if his client was given an opportunity to file objections to the report and place materials in support of these objections, he would have shown that the trunk calls pertained to the business of the first respondent. He says that the company had litigation in madras and delhi and the trunk calls might have been made in connection with that litigation. But though an opportunity was given to the 2nd respondent to file a further counter - affidavit, he did not give any details as to how this large amount was spent for and on behalf of the corporation. Though on the material placed before us we cannot definitely come to the conclusion how much of that amount was spent for the corporation's purposes and how much for the private purposes of the 2nd respondent, for the purpose of the appeal in the absence of any definite explanation by the 2nd respondent, we should hold that prima fade the and respondent had utilised the funds, for his own business.

(13) The next charge against the and respondent is that he has unauthorisedly withdrawn monies from the provident fund and spent them for his personal purposes. The company, in its counter, says that the management in regard to the provident fund was different and had no bearing on the accounts of the corporation. It is further stated that there are trustees for the fund, two of them being representatives from the staff and there is nothing owing to the fund from the corporation or the chairman. The and respondent adopts this counter. In the report, the position in regard to the provident fund has been stated thus : the and respondent, the chairman of the corporation, is the managing trustee of the provident fund and he alone can operate on the bank accounts. He withdrew on 11th september, 1953, a sum of rs. 8,000 using a loose cheque taken directly from the bank without using the regular cheque book lying in the office. He paid back the amount on 23rd december, 1953. This withdrawal and deposit do not find a place in the day book or ledger or the audit report relating to the provident fund. Again, on 13th february, 1954, he withdrew an amount of rs. 10,000 from 'out of the provident fund. For this withdrawal, he made out a cheque in favour of his nominee mr. Subrahmanyeswara rao. A new cheque book was obtained directly from the bank and used although the previous cheque book lying in the office had still several leaves. The amount of rs. 10,000 was credited directly into the bank on 4th october, 1954. In the audit report for the year ending 31 st march, 1954, prepared on. 13th may, 1954, the amount of rs. 10,000 was shown as cash with the managing trustee. This withdrawal and credit are not shown in the account books of the provident fund of the firm. The accounts also show that subsequent interest at the rate of four per cent was paid. The withdrawals and the deposits were made without the consent of the trustees and they do not find place in the account books. On 21st june, 1955, the trustees passed a resolution ratifying the transaction of the managing trustee. The resolution was signed by all the trustees including the 3rd respondent. After the report, no further explanation is given in regard to this transaction. The learned judge, after considering the material placed before him, held that it is a case of breach of trust. The only explanation offered on behalf of the company is that this has no bearing on the accounts of the corporation and the amounts were repaid. Rule 2 of the rules prescribed for the provident fund says that the chairman, vice - chairman, secretary and the engineer are the trustees of the provident fund. It is impossible to believe that a chairman, who is a businessman and one connected with the company for so many years, did not know that he could not borrow from the provident fund. But the secrecy attached to the transaction and the care taken to see that the accounts do not disclose the transaction clearly indicate that the trustee withdrew the monies for his own purposes with the knowledge that he had no power to do so. The fact that he had refunded the amount does not affect the question. It is also very difficult to believe that this could have been done without the knowledge of the vice - chairman who was, according to the and respondent, the man in actual charge of the entire affairs of the company. That technically the provident fund accounts are separate from those of the company and the trustees are different is not of any relevance for the provident fund is a fund created for the servants of the company and the 2nd respondent is made the trustee because he is the chairman of the company.

(14) This clearly shows that the chairman was utilising the funds of the company for his personal purposes though he repaid the amounts subsequentl v. A sum of rs. 48,933 - 8 - 0 has been taken by the 3rd respondent on suspense account and that amount remains unaccounted for. In the company's counter, it is stated that, towards the end of the year 1954, it vaguely came to know of the several acts amounting to misfeasance, malfeasance, etc. , on the part of the 3rd, respondent and that on 10th december, 1954, the chairman of the corporation, the and respondent, passed an order directing the said amount to be debited against the personal account of the 3rd respondent. The following facts appear from the committee's report. The suspense account discloses that large amounts were withdrawn without any purpose and without the sanction of the board of directors. In the year 1951 - 52, an amount of rs. 3,541 was withdrawn on 16th july, 1951 and the amount was adjusted from time to time. In 1952 - 53 a large amount of rs. 18,385 was withdrawn and, in the last few days of the financial year, the accounts show that a sum of rs. 12,809 was repaid. In 1953 - 54, a large amount of rs. 50,322 - 8 - 0 was drawn out on suspense upto january 21st and the entire amount was shown as paid back. In 1954 - 55 a total sum of rs. 55,212 - 8 - 0 was shown as having been drawn out in suspense upto november, 1954 by the 3rd respondent. After some amounts were paid on 10th december, the remaining amount of rs. 48,933 - 8 - 0 was shown as adjusted by transfer to the personal account of the 3rd respondent. It may be recalled that the 2nd respondent was vice - chairman from 1950 to 1953 and the 3rd respondent was vice - chairman from 1953 to 10th january, 1955. The committee, after scrutinising the accounts, reports that, in the case of many withdrawals, no purpose is mentioned for drawing out the money and that no receipts were issued when the amounts were alleged to have been repaid. After the chairman passed the order dated 10th december, 1954, directing the said amount to be debited to the 3rd respondent, the board of directors met on 10th december, 1954 and passed a resolution approving the action of the chairman and directing an explanation to be called for from the 3rd respondent and the cashier in regard to the sum of rs. 48,933 - 8 - 0 and also another sum of rs. 11,034 - 0 - 0. The general body again met on 31st december, 1954. This subject was not on the agenda. Though it is said that there was informal discussion, there was nothing on record to show that the general tody discussed about this defalcation. On 10th, january, 1955, the 3rd respondent resigned his vice - chairmanship and gave up his management and the board curiously passed a resolution expressing its regret and eulogising the 3rd respondent for his services. This conduct on the part of the board after it was discovered that a sum of rs. 48,933 - 8 - 0 was withdrawn by him shows that the directors including the chairman had a soft corner for the 3rd respondent. It may also be mentioned that, during the period when large amounts were drawn by the 3rd respondent, no meetings of the board of directors were held, i. E. , between 1st april, 1954 and 14th november, 1954. Learned counsel for the appellant argues that the and respondent being the figure - head and having implicit belief in the integrity of the 3rd respondent, allowed everything to be conducted by the latter and that, as soon as he discovered the fraud, he made the order dated 10th december, 1954, which led to the resignation of the 3rd respondent from the vice - chairmanship. We find it very diffcult to accept this explanation. The chairman is a businessman a,nd he was in actual management of the company as its vice - chairman before he became the chairman. Both the and and 3rd respondents were associated together for a long period in the management of this company. Though on the material placed before us, it is not possible to hold positively that the 2nd respondent colluded with the 3rd respondent and shared the ill - gotten gains, one of two things must have happened. Either both colluded and defrauded the company, or, the and respondent was grossly negligent and thereby allowed the 3rd respondent to draw out large amounts to the detriment of the company. In either view, the learned counsel cannot exonerate the and respondent by stating that he was only a titular head of the company.

(15) The next charge against the chairman is that travelling expenses incurred by the relations of the chairman on private trips of theirs have been debited to the corporation account. In the counter filed by the company and the and respondent, it is stated that the persons were sent for the business of the company and, therefore, the amount was debited to the company. In the committee's report, the details of the monies spent for travelling expends are given. One of the vouchers shows that c. Mangapathi rao, a nephew of a. Ranga rao, was paid rs. 475 for his journey to vijayawada and madras in connection with the "power supply agreement papers. " in the counter filed after the report, no further explanation is given about this amount. Learned counsel contends that, as the nephew was sent in connection with the company's business, there was nothing wrong in paying him the expenses incurred by him. On the material placed before us, we cannot say that the amount was spent for the company's purposes. The next charge against the chairman is that the chairman and the ex - vice - chairman borrowed large sums of monies for private purposes utilising the corporation's credit for the borrowings. The and respondent, in the counter, denies that he had borrowed monies utilising the corporation's credit. He also suggests that, in some of the hundies executed by him and the 3rd respondent jointly, the 3rd respondent had affixed the corporation's rubber stamp to foist the charge on him. The committee reports that the chairman and the vice - chairman borrowed considerable sums on hundies on many occasions, from nalam raja rao and mangoomal chunilal brothers and that they utilised their designations as chairman and vice - chairman while borrowing monies or hundies. They also filed a copy of the relevant account of nalam raja rao and a letter from mangoomal chunilal brothers. The heading of the account of nalam raja rao reads : "account with sri nalam raja rao, banker of rajahmundry electric supply corporation, ltd. " and the account discloses that various amounts were drawn by the and and 3rd respondent on hundies jointly executed by them. The letter written by mangoomal chunilal shows that in 1953 - 54 some amount was borrowed by r. E. S. Co. , ltd. , on hundies and the signatories to the bonds were a. Ranga rao and d. Ramamohana rao on behalf of r. E. S. Co. , ltd. The aforesaid material clearly indicates thst the and and 3rd respondents were jointly borrowing amounts on behalf of the company from third parties for their own purposes. The facts disclosed in this case also support the conclusion of the learned judge that a "junta is ruling the roost. " the general body proceedings disclose that most of the members are apathetic and they are not taking an interest. The few people, who presumably were gathered at the instance of respondents 2 and 3 were doing what the directorate asked them to do. In the directorate, the and respondent has a prominent position and is practically dictating everything. This is illustrated by two circumstances. When the 3rd respondent ingloriously resigned, the directorate passed a resolution expressing regret at his exit and eulogising him for his services. When the 4th respondent, whose record appears to be very clean, became the vice - chairman and began to take keen and active interest in the affairs of the company he was tolerated so long as he sailed with the 2nd respondent and when he took on himself the unenviable task of scrutinising the affairs of the company along with the other members of the committee and submitting a report to this court, he was unceremoniously dismissed from his office by the directorate. This only shows the grip the 2nd respondent has on the yes - men of the directorate. The 4th respondent in a separate counter - affidavit which he filed after he was dismissed, gives the various irregularities the chairman has committed in the matter of withdrawal of sums without strictly conforming to the rules and his unnecessary interference with the appointment of staff. He also says that, ever since 15th august, 1954, the chairman and the secretary were ransacking the records of the company on the plea of verifying the accounts and that he has definite information that the chairman and his man with their advisers were keeping very late hours in the office even upto midnight. He also brings to the notice of the court that one of the trunks containing the records of the corporation was lost in transit while they were being brought to guntur on the 12th of august. The 4th respondent's conduct is above - board and we have no hesitation to accept the allegations in the counter - affidavit as regards the activities of the 2nd respondent in connection "with the affairs of the company. From the aforesaid facts, it is clear that the chairman is not as innocent as he pretends to be. It is not necessary nor is it possible on the material placed before us to allocate the blame between respondents 2 and 3 or to specifically find out whether the amounts were misappropriated jointly by them. But there is enough material to disclose that both of them jointly defrauded the company or that the and respondent was grossly negligent or was conniving at the acts of the 3rd respondent. It is also clear from the record that respondents 2 and 3 were associated in the management of the company for a very long time and that they were helping and conniving at each other for utilising the funds of the company. The fact that the and respondent made an order on 10th december, 1954, directing the amount to be debited against the 3rd respondent will not lead to the irresistible conclusion that he was not sailing with him till a stage when it became impossible for any chairman to cover "the defalcations. It is common knowledge that two joint culprits would ordinarily fall out on the eve of detection or after detection, with a view to escape the consequences of their misdeeds. We should not be understood to have given any definite finding in this case that respondents 2 and 3 collusively misappropriated the amounts. It is enough for the purpose of this case to say that the and respondent cannot prima fade escape his responsibility for the gross mismanagement of the company. Now coming to the other directors, they are all figure - heads. They are all yes - men. Indeed respondents 6, 7 and 8 who are sailing with the 2nd respondent, state that they had no knowledge of the irregularities until they were brought to their notice by the 2nd respondent. These respondents, along with the other directors, though they accepted a very responsible position, did not take any interest in the affairs of the company and, by their negligence, allowed large defalcations to be made in the monetary affairs of the company.

(16) At present the position in the directorate is this. The 3rd respondent ceased to be a director as he was removed by the general body on 23rd june, 1955. Respondents 5 and 7 ceased to be directtors because they lost their share qualifications. The 9th respondent ceased to be a director by his absence from consecutive meetings during the pendency of the petition, the 8th respondent died in august, 1955. The remaining directors are only respondents 2, 4, 6 and 10. It is said that the, nth respondent has,been co - opted as director on 26th march, 1955. Therefore, there are only five directors now functioning. Of these five directors only the 6th respondent opposes the petition, the 4th respondent, who really impressed us as a person who is taking a keen interest with a view to save the company from utter ruination, supports the petitioner. The gth respondent, in his counter, says clearly that it is necessary that an order appointing an interim administrator or provisional liquidator should be made immediately to take over the entire management of the assets of the company and, therefore, he supports the petitioner. It is, therefore, clear that there is no unanimity among the directors and that they are moving in different directions, some supporting the petition and others opposing it. From the aforesaid discussion the following broad facts emerge. The general body is apathetic and is not taking any interest in the affairs of the company. When meetings are called for, though the membership is about 600, only a few members are attending. The directorate is ruled by a clique. By their own showing, except the vice - chairman, the others are not taking any active interest in the affairs of the company. There is also conflict between the members of the directorate itself. There was defalcation to the extent of more than rs. 60,000 and that was allowed to be committed. Large arrears to the extent of rs. 3,10,175 - 3 - 6 are due to government on 27th june, 1955. The arrears due from consumers have not been duly collected. Though the company was purchasing electricity at a cheap rate and selling it to consumers at a high rate, no appreciable profits are shown. The machinery has been left in utter disrepair. There is a strong suspicion of the accounts being manipulated. The correct state of affairs was never disclosed to the general body. The chairman and the vice - chairman were jointly borrowing monies on the credit of the company and utilising them for their purposes. The chairman with drew the money from the provident fund for his own purposes and the other trustees including the vice - chairman ratified the action of the 2nd respondent. Though there is no clear evidence of collusion between respondents 2 and 3 there is enough material to raise a grave suspicion that the 2nd respondent might have colluded with or connived at the actions of the 3rd respondent. At any rate, there is clear evidence of gross negligence on the part of the 2nd respondent in not taking an active interest in the management of the affairs of the company under the articles of association. When the 4th respondent came on the scene to rescue the company from the muddle, he was unceremoniously dismissed. In these circumstances, we have no hesitation to accept the finding of the learned judge that there are sufficient circumstances for winding up the company on the ground that it was just and equitable to do so. But the learned judge thought of giving another chance to rectify the defects by appointing interm administrators and handing over the management, if possible, to the new directorate that may be elected in six months by the general body. We do not see any justification for interference with his order made in the interests of the company. We have already expressed our view that the powers conferred on a court under section 153 - g are wide enough to pass the order which the learned judge did in this case and we are also of the view that that section is really intended to meet situations similar to those that arose in this case. It is then contended by the learned counsel for the appellant that the directorate should be allowed to function with nominal powers and that the administrators should be made to function under the formal directions of the board of directors. But, in view of the antecedents of the present directorate, we do not think we are justified in varying the order of the learned judge. Learned counsel contended that, under section 153 - g, a court can make an order thereunder with a view to bring to an end the matters complained of and that, as the matters complained of ended one way or other, the court ceased to have any power to make an order under this section. To put it differently, the argument is that defalcation ended with the 3rd respondent taking away the monies and that various acts of mismanagement were already committed and, therefore, no question of ending the matters complained of would arise in this case. The argument is rather attractive but, in our view, it is fallacious. In the petition, it is complained that there is mismanagement of the company, which ended in grave defalcation and which also threatens the company with ruination. The fact that some acts have already been committed does not indicate that the mismanagement has come to end. The acts already committed would only illustrate mismanagement. But the mismanagement continues and, if the serious acts of omission and commission by the directorate are allowed to continue, the company will be ruined. The mismanagement has not ended but it requires to be remedied by the drastic action now taken by the learned judge. We cannot therefore accept the argument that section 153 - g has no application.

(17) Lastly, it is contended that the learned judge did not follow the procedure he should follow in an o. P. It is said that he did not give an opportunity to file objections to the commissioner's report and even allow documents to be marked as exhibits in the case. We have already pointed out that the commissioners were appointed by consent and after the report the 2nd respondent and others were allowed to file further affidavits. The object of filing further affidavits was only to record their objections if any to the report. As regards the marking of the documents, it is not suggested that any objection was taken to that course before the learned judge. Indeed, no question of marking the exhibits arose at all, for all the parties presumably by consent argued the case on the basis of the committee's report in the light of the affidavits filed by them. We, therefore, accept the finding of the learned judge and confirm the further directions given by him. The appeal is not pressed as against the yth respondent. In the result, the appeal fails and is dismissed with costs of respondents 1, 4, 5 and 8. Appeal dismissed.