Karnataka High Court
Official Liquidator Of M/S Titan Food & vs Sri O K Shaheed on 29 November, 2023
-1-
NC: 2023:KHC:43570
CA No. 2111 of 2013
IN
COP NO.2 of 2006
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF NOVEMBER, 2023
BEFORE
THE HON'BLE MR JUSTICE C.M. POONACHA
COMPANY APPLICATION NO. 2111 OF 2013
IN
COMPANY PETITION NO.2 OF 2006
BETWEEN:
1. OFFICIAL LIQUIDATOR OF
M/S TITAN FOOD & FASHIONS LIMITED (IN LIQN)
ATTACHED TO HIGH COURT OF KARNATAKA
CORPORATE BHAVAN
NO.26-27, RAHEJA TOWERS
12TH FLOOR
M G ROAD, BANGALORE-1
...APPLICANT
(BY SRI SHRISHAIL NAVALGUND, ADVOCATE FOR OL)
AND:
1. SRI O K SHAHEED
79, ITI LAYOUT, BENSON TOWN
Digitally
signed by BANGALORE-560046
BHARATHI S
Location:
HIGH 2. SRI K AHAMEED AMEEN
COURT OF P.O.BOX 1837, AL AROO 13A
KARNATAKA
STREET, UNITED ARAB EMIRATES
3. SRI P PAKKAR KOYA
P.B.NO.4266, DEIRA DUBAI
UNITED ARAB EMIRATES
...RESPONDENTS
(BY SRI ZULFIKIR KUMAR SHAFI &
SRI S LAKSHMINARAYAN REDDY,ADVOCATES)
THIS COMPANY APPLICATION IS FILED UNDER SECTION 543
[1] OF THE COMPANIES ACT, 1956, R/W SECTION 458A & RULE 260
OF THE COMPANIES [COURT] RULES, 1959, PRAYING TO PERMIT
-2-
NC: 2023:KHC:43570
CA No. 2111 of 2013
IN
COP NO.2 of 2006
THE APPLICANT/ THE OFFICIAL LIQUIDATOR TO FILE THE
ADDITIONAL POINTS OF CLAIM IF FOUND AFTER THOROUGH
VERIFICATION OF ENTIRE BOOKS AND RECORDS OF THE COMPANY
IN LIQUIDATION AND AFTER RE-INVESTIGATION TO BE CONDUCTED
BY CHARTERED ACCOUNTANT AND ETC.
THIS APPLICATION, COMING ON FOR ARGUMENTS, THIS DAY,
THE COURT MADE THE FOLLOWING:
ORDER
1. The present application is filed under Section 543(1) of the Companies Act (hereinafter referred to as the 'Act') r/w Section 458A and Rule 260 of the Companies (Court) Rules, 1959 (hereinafter referred to 'Rules').
2. It is forthcoming that the applicant company (hereinafter referred to as 'the company in liquidation') was ordered to be wound up vide order dated 12.10.2007 passed by this Court in Co.P.No.2/2006 and the official liquidator attached to this Court was appointed as the liquidator of the said company as provided under the provisions of Section 449 of the Act. That despite the notice issued by the official liquidator to the ex- directors, they have failed to comply with the requirements of Section 454(1) and (2) of the Act. That pursuant to the order dated 30.5.2013 passed by this Court in OLR No.395/2012, a Chartered Accountant was appointed by the applicant to -3- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 investigate into the affairs of the company and he submitted his report on 24.7.2013.
3. In the present application, the claim of `42,64,536/- made against the respondents are in respect of the following amounts:
Sl.No. Particulars of Details Amount
(in Rs.)
1 Un-paid Calls 69,530
2 Sundry Debtors 41,95,006
Total 42,64,536
4. It is the claim of the applicant that with respect to unpaid calls, a sum of `69,530/- remains unpaid as call money of Rs.5/- per share pending against the public issue from one Mr.S.K.Anand who was holding 13,960 shares. It is forthcoming that in the report of the Chartered Accountant dated 24.07.2013, it has been observed that the company in liquidation vide its letter dated 04.02.2011 informed that the amount of `69,530/- amount could not be collected due to death of the shareholder. However, in the said report, it is stated that since no records are available to show that Ex- Directors have taken any steps to recover the unpaid money as -4- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 call money, it was considered as misfeasance on the part of the Directors.
5. With regard to the claim in respect of Sundry Debtors, it is stated that vide Board resolution dated 25.06.2007, the Board of Directors ratified the Managing Director's action in deleting the non-receivable Sundray Debtors. It is averred that the company instead of taking steps to realize the amount of `41,95,006/- and the same having been written off the action caused loss to the company and hence tantamounts to misfeasance.
6. Respondent Nos.1 to 3 have filed their statement of objections. In the said Statement of objections with regard to the unpaid call money, it is stated that in view of the death of the shareholder, despite the first attempt by the Directors in collecting the unpaid money, the same could not be collected. Further, it is placed on record that the Board resolution Book, files and documents of the company in liquidation were damage/lost during the floods of November 2005 which has been placed on record in the 18th Annual General Body Meeting of the company held on 08.09.2006. The allegation that -5- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 Director of the company have note taken steps to realize the outstanding Sundry Debtors to the tune of `41,95,006/- have also been denied. It is specifically averred that the company in liquidation incorporated in the year 1998 and was engaged in the business of exporting of leather and food product. Subsequently, the company set up a manufacturing unit for leather shoes and jackets and due to massive international recession of leather products in the year 1995 onwards, more than 100 large and medium leather product/shoe manufactures succumbed to the recession, became sick and shut down their operations, especially due to the large scale non-payment of export bills by buyers from the foreign markets.
7. Various other averments have been made by the respondents in the statement of objections denying the assertion of the applicant that the respondents are guilty of misfeasance.
8. To prove its claim, the applicant examined its Chartered Accountant who furnished the report as PW.1. The report of the Chartered Accountant dated 24.7.2013 has been marked as Ex.P1. Although time was granted to the respondent to cross -6- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 examine PW.1 vide order dated 11.01.2023 the cross examination was taken as 'nil' and by order dated 20.02.2013 the respondent's evidence was closed.
9. It is forthcoming from the affidavit by way of evidence of PW.1 that only the claim made with regard to the unpaid calls of Rs.69,530/- has been averred. There is no evidence with regard to the claim of Sundry Debtors. Hence, the claim made in the application with regard to the Sundry Debtors not having been proved, the same is liable to be rejected.
10. With regard to the claim of unpaid call money, it is forthcoming from the record that the said unpaid money was with regard to Rs.13,906/- shares of `5 each held by one Sri.S.K.Anand and the same remained unpaid since he was reported to have died. The claim made by the applicants is that since no steps was taken to recover the unpaid call money from the legal representatives of said Sri S.K.Anand, the same tantamounts misfeasance and breach of trust.
11. In the case of Official Liquidator of M/s Sterling Leather (Exports) Pvt. Ltd., v. Sri Ramanathan and -7- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 others1, a co-ordinate Bench of this Court considering a case where in respect of a claim made in the application reliance was mainly placed on the report of a Chartered Accountant, held that the application for misfeasance based mainly on the report submitted by the Chartered Accountant will not be sustainable. The said judgment is also followed by another co-ordinate Bench of this Court in the case of the Official Liquidator of M/s Ideal Jawa (India) Limited (in Liqn) v. Sri Tehmton Rustom Irani & Anr.,2
12. A co-ordinate Bench of the Madras High Court in the case of Official Liquidator, Madras Oils and Fertilizers (P) Ltd., v. G.Shanmugham3 has held as follows:
"7. Section 543 of the Companies Act which enumerates the power of court to assess damages against the delinquent directors has set down certain norms for the exercise of such power resulting in mulcting the ex- officers, may be directors, with damages for not acting reasonably and thus committing the company to unnecessary loss. The vein that runs through the intendment of s. 543 of the Companies Act appears to be that there should be prima facie proof of such negligence bordering on misfeasance and breach of trust which alone was generally the basis for invocation of the punitive rule contained in s. 543 of the Companies Act. No doubt, s. 543(1)(a) and s. 543(1)(b) create as between themselves 1 Order dated 7.4.2010 passed in CA No.1012/2008 2 order dated 23.2.2012 passed in CA No.888/2006 3 (1979) 49 CC 903 -8- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 a dichotomy in the matter of the exercise of the power of the court in such matters. As per cl. (a) of sub-s. (1) of s.
543 of the Act, such a power to assess the damages could be invoked in case of misapplication and retention of monies or property of the company and on a fair and reasonable conclusion by the court that the officers of the company are liable or accountable for the same. The court can then exercise its jurisdiction and assess the damages against the delinquent director or officer. Clause (b) of sub-s. (1) of s. 543 of the Act, however, lays down a specific hypothesis for the invocation of the power and for the exercise of it. It contemplates that the delinquent director should be found to be guilty of misfeasance or breach of trust in relation to the company. Therefore, cl.
(b) deals with a particular situation, wherein it should appear to the court, whether on the application of the liquidator or any creditor or contributory, that the company whilst it was functioning acted through a body known as the directors or the officers who are guilty of appropriation without authority of the funds of the company. It may ultimately be a case wherein there was misappropriation also resulting in the breach of that faith which the shareholders and the creditors outside the domestic chamber of activity of a company place in the body of directors or officers in charge of the affairs of the company. A further elucidation of the purpose and objective of cl. (b) of sub-s. (1) of s. 543 is not necessary for purposes of this case. I am not, therefore, embarking on it. But as it appears on the arguments addressed before me, the official liquidator can succeed in making for the issuance of the prayer in the summons only if he proves that the respondents 1 to 4 as quondam directors of the company have become liable or accountable for the money which was due to the company. Certainly, this is not a case where monies have been misapplied or monies have been retained by the directors including the respondents 1 to 4. The question, therefore, is whether, in the circumstances of the case, respondents 1 to 4 or any one or more of them are accountable for the monies claimed in the judge's summons."
(emphasis supplied) -9- NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006
13. A co-ordinate Bench of this Court in the case of Official Liquidator of Alliance Leathers P. Ltd., (in liqn) v. Nishath Patel and Anr., 4 has held as follows:
"8. In the above facts and circumstances, as rightly contended by counsel for the respondents, it is not merely sufficient to allege that since the statement of affairs would indicate that monies were due to the company under several heads, and on account of the inaction on the part of the respondents, they would be guilty of misfeasance is entirely acceptable. Apart from want of diligence on the part of the ex-directors, it ought to be alleged and established that there was a wilful and culpable negligence on their part apart from there being acts of breach of trust, resulting in misfeasance. The circumstance that the entire assets of the company were taken over by the KSFC along with the material documents and records, would certainly place the respondents at a disadvantage in taking steps to recover the monies that may have been due to the company. There is no serious dispute in this regard. However, counsel for the official liquidator still contending that there was a duty cast on the directors and that they ought to have procured relevant documents from the KSFC or from such other source, is an impractical suggestion and since there is no legal provision which could have been invoked by the ex-directors, to enable them to procure the documents from the possession of the KSFC, the responsibility being claimed against the respondents is misplaced. Accordingly, the application is dismissed."
(emphasis supplied)
14. In the present case, apart from the fact that unpaid call money in respect of the pending shares against public issue in respect of one Mr.S.K.Anand who was stated to be deceased has been unpaid, merely on the ground that the Chartered 4 (2009)151 CC 535=2009 SCC OnLine Kar 677
- 10 -
NC: 2023:KHC:43570 CA No. 2111 of 2013 IN COP NO.2 of 2006 Accountant has opined that the ex-directors have not taken any steps to recover the amount unpaid call money and the Chartered Accountant having considered it as misfeasance on the part of the ex-directors, the present application is filed. Hence, it is clear that in the present case apart from want of diligence there is no allegation that there was willful or culpable negligence.
15. In view of the aforementioned, the company application is dismissed as being devoid of merit.
SD/-
JUDGE BS List No.: 1 Sl No.: 54