Court Finds Respondent Lied in Affidavits, Orders Inquiry into False Evidence

The court found that respondent No.3 knowingly and intentionally swore false affidavits claiming respondent No.2-Company was the successor of respondent No.1-Firm under Part IX of the Companies Act, 1956. The court concluded that respondent No.3 made false statements with dishonest intentions and quashed the trial court's order. An inquiry into the alleged offence of giving false evidence was deemed expedient in the interest of justice. The court directed further proceedings under Section 340 of the Cr. P.C independently. The appeal was disposed of, with a stay granted for three weeks for the respondents to seek recourse in a higher forum.

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Issues Involved:
1. Whether respondent No.3 knowingly and intentionally swore false affidavits claiming that respondent No.2-Company was the successor of respondent No.1-Firm under Part IX of the Companies Act, 1956.
2. Whether the trial court erred in its interpretation and application of Part IX of the Companies Act, 1956 and section 565 of the said Act.
3. Whether it is expedient in the interest of justice to initiate an inquiry into the alleged offence of giving false evidence.

Issue-wise Detailed Analysis:

1. False Affidavits by Respondent No.3:
The appellants contended that respondent No.3, the director of Nak Engineering Company Private Limited, deliberately and intentionally made false statements on oath in support of Notices of Motion No.1925 of 2017 and 1346 of 2018. The false claim was that respondent No.2-Company was the successor of respondent No.1-Firm under Part IX of the Companies Act, 1956. The court meticulously examined the record and found that respondent No.1-firm had only four partners, whereas a minimum of seven partners is required for conversion into a Limited Company under Part IX of the Companies Act, 1956. Additionally, no documents were produced to indicate that the necessary procedures for such conversion were followed. The court concluded that respondent No.3, being a practicing Chartered Accountant, knowingly made a false statement with dishonest intentions.

2. Trial Court's Error in Interpretation:
The appellants argued that the trial court failed to appreciate that the only document relied upon by respondent No.2 to support their claim of being the successor of respondent No.1-Firm was the memorandum of association, which merely indicated an intention to take over the business activities of respondent No.1-Firm. The court found that the trial judge did not correctly interpret the true scope and ambit of Part IX of the Companies Act, 1956, as well as clause (b) of sub-section (i) of Section 565 of the said Act. The court observed that respondent No.1 continues to exist as a partnership firm and that the certificate of incorporation of respondent No.2-Company was issued under section 574, not under Part IX of the Companies Act, 1956. Therefore, the court held that the trial court reached an erroneous conclusion in the impugned order, which needed to be quashed and set aside.

3. Expediency of Inquiry in the Interest of Justice:
The court referred to the Supreme Court's decision in Amarsang Nathaji Vs. Hardik Harshadbhai Patel, which laid down two preconditions for initiating proceedings under Section 340 Cr. PC: (i) a prima facie case for a complaint must be made out, and (ii) it must be expedient in the interests of justice to inquire into the alleged offence. The court found that the material on record was sufficient to indicate deliberate and intentional false evidence by respondent No.3. The court also referred to the Supreme Court's judgment in Prem Sagar Manocha Vs. STATE (NCT OF DELHI), emphasizing that the purpose of a preliminary inquiry under Section 340 CrPC is to decide whether it is expedient in the interest of justice to inquire into the offence. The court concluded that there was a prima facie case of deliberate falsehood on a matter of substance and that it was expedient in the interest of justice to initiate an inquiry.

Conclusion:
The court quashed and set aside the impugned order dated 5th October, 2018, in Notice of Motion No.823 of 2018 in Suit No.6117 of 2007. The trial judge was directed to proceed further in accordance with Section 340 of the Cr. P.C independently, un-influenced by the observations made in the judgment. The appeal was disposed of, and a stay on the effect and operation of the judgment was granted for three weeks to facilitate the respondents to approach a higher forum.

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