Hansraj Gupta and others vs Dehra Dun-Mussoorie Electric Tramway Co. Ltd.

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1940 Supreme(SC) 11

Privy Council At Allahabad
Porter, Thankerton, Justice Lords Atkin, JJ.
Hansraj Gupta and others -Appellant
Versus
Dehra Dun-Mussoorie Electric Tramway Co. Ltd. -Resopndent
Privy Council Appeal No. 53 of 1938; Allahabad Appeal No. 40 of 1936
Decided On : 18-03-1940

Important Points

Fraud must be established by cogent evidence that excludes any reasonable hypothesis of good faith; mere suspicion or lack of business-like methods is insufficient to overturn a trial court's finding on a witness's credibility.

Subject

Civil Law - Company Law

Act Referred

Indian Companies Act, 1913: S.235, S.186

Headnote

(A) Indian Companies Act, 1913 - Proof of Fraud - Party alleging fraud is bound to establish it by cogent evidence; suspicion cannot be accepted as proof - Unless proved circumstances are incompatible with the hypothesis of the person charged with fraud having acted in good faith, they cannot be accepted as affording sufficient proof of fraud.

(B) Appreciation of Evidence - Credibility of witness - Appellate courts should regard with respect the views of the trial judge who saw the witness as to their credibility.

Facts of the case:
Liquidators of a company sued the legal representatives of a contractor and his manager, alleging a fraudulent conspiracy to manufacture false receipts to deceive auditors and conceal misappropriations of company funds by a promoter. The trial court found the manager acted in good faith, believing the explanations provided by the promoter, and dismissed the claim. The High Court reversed this decision, holding that the manager was a party to the fraud practiced on the auditors.

Findings of Court:
The High Court's reversal was unjustified as the evidence did not exclude the possibility of good faith. The manager's lack of business-like methods and the specific terms of the receipts were insufficient to establish fraud, especially when the trial court had already accepted the witness's credibility and the company's own accountant's testimony supported the possibility of the manager being deceived.

Issues: Whether the evidence was sufficient to prove fraud against the employee and whether the High Court was justified in overturning the trial court's finding on the witness's credibility.

Ratio Decidendi: Fraud must be proven by cogent evidence that is incompatible with a hypothesis of good faith. In the absence of such evidence, the finding of the trial court regarding the credibility of a witness should not be disturbed by an appellate court simply because another view is possible.

Result: Appeal allowed.

Legal Category Hierarchy

Advocates Appeared:
Nehra and Co., W.W. Box and Co., Dingle Foot, J.P. Eddy, W. Wallach, Sir Herbert Cunliffe

Lord Thankerton:-

This appeal is from a decree of the High Court of Judicature at Allahabad, dated 1st September 1936, which reversed a decree of the Subordinate Judge at Dehra Dun dated 4th February 1931 and granted a decree to the plaintiff-respondent for a sum of Rs. 13,100 with interest at 6 per cent. from 31st August 1923. The suit arises out of the misdeeds of Beltie Shah Gilani, who was the promoter and managing agent and managing director of the Dehra Dun-Mussoorie Electric Tramway, which was registered under the Indian Companies Act, 1913 , on 23rd August 1921, and was ordered to be wound up by the High Court on 26th March 1926, N. P. Asthani and Bhagwati Shanker being appointed the Official Liquidators. On investigation, it was found that large sums of the Company's monies had been misappropriated by Beltie Shah. Certain contracts with the Company were made by Lala Raghumal, who carried on business as a contractor under the name of Madho Ram-Hardeo Dass at Calcutta and under the name of Madho-Ram-Budh Sing in Delhi. He was also a large shareholder in the Company. Raghumal died in September 1926, and appellants 1 to 5 (appellant 3 being since deceased) are his legal representatives. Appellant 7 is the Official Receiver of the Calcutta High Court, who was appointed Receiver of the estate of Raghumal by an order of that Court dated 16th June 1931. Appellant 6, Lala Mela Ram, was in the service of Raghumal and was the manager of his Delhi business.

On 25th June 1929, the Company through its Official Liquidators instituted the present suit claiming a sum of Rs. 39,750 with interest at 12 per cent. per annum, i. e., Rs. 30,240-14-9, and future and pendente lite interest, on the ground of fraudulent conspiracy of Raghumal and his authorized agent, Mela Ram, with Beltie Shah in the misappropriation of the sum of Rs. 39,750 of the Company's monies. Historically, it should be mentioned that in 1927 the Liquidators had taken misfeasance proceedings under S. 235, Companies Act, against Beltie Shah, which resulted in an order dated 3rd April 1927, against Beltie Shah for sums amounting to over three lakhs, which included the sum of Rs. 39,750 here in question. Beltie Shah was also criminally prosecuted and was sentenced to imprisonment for a period of five years. In March 1928 the Liquidators applied under S. 186 Companies Act, for recovery from Raghumal of two sums of money, of which one was the amount here in dispute, but the application failed. The Liquidators also took misfeasance proceedings against the Company's auditors. Mukerji J., on 26th February 1929, decreed the Official Liquidators application and held the auditors liable to pay Rs. 89,812-8-0, including the amount here in dispute. On appeal, the High Court affirmed with this modification :

Though we affirm the order of the learned Judge that the auditors are to compensate the company to the extent of Rs. 39,750 we direct that execution for this amount shall be stayed until further order. The Liquidators are to be at liberty to make an application to discharge the stay order hereby granted in respect of this sum of Rs. 39,750 when the contest between themselves and the contractors has been finally decided (a) adversely to the Liquidators or (b) in favour of the Liquidators, and they, after taking all reasonable steps to recover the amount, have failed wholly or in part to do so. If the Liquidators recover a portion of the Rs. 39,750 from the contractors, they should then apply to the Court giving credit to the auditors for that amount and seeking execution as to the balance only.

The auditors obtained leave to appeal to His Majesty in Council, but the appeal was compromised by the auditors paying Rupees 18,500 to the Liquidators in full and final discharge of the said decree. As will be seen, their Lordships do not consider these various proceedings material to the only issue which they find it necessary to consider. Their Lordships do not find it necessary to review th