Rajasthan High Court - Jaipur
Official Liquidator vs Shri Sanjay Modi & Anr on 15 February, 2018
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
S.B. Company Application No. 26 / 1999
Official Liquidator of M/s Kalyan Sundram Cement Industries Ltd.,
(in Liquidation), Attached to the Rajasthan High Court, Jaipur
Bench, B-75/A, Rajendra Marg, Bapu Nagar, Jaipur.
----Petitioner
Versus
1. Shri Sanjay Modi S/o Late Shri K.M. Modi, Centuray Bhavan,
3rd Floor, Dr. A.B. Road, Mumbai-400025.
2. Shri S.K. Wadia, S/o Shri K. Wadia, Mulla & Mulla Carice, Blunt
& Caroe, 51, Mahatma Gandhi Road, Bombay.
----Respondents
_____________________________________________________ For Petitioner(s) : Mr. Gaurav Sharma, Adv. with Mr. US Patole, OL For Respondent(s) : Mr. Sunil Nath, Adv.
Mr. Alok Garg, Adv. with Ms. Priyanka Tiwari, Adv.
_____________________________________________________ HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA Judgment / Order Reserved on 14/12/2017 Pronounced on 15/02/2018 Reportable
1. Instant company application has been filed by the Official Liquidator under Section 543 of the Companies Act, 1956 seeking following relief:-
"(i)Examine into the conduct of the respondents No.1 & 2 and compel them to restore such money and properties of the Company in liquidation as may be thought fit and proper by this Hon'ble Court alongwith interest and/or direct the respondents to give compensation as may be ascertained in respect of the misapplication, retention, misfeasance as the Court may think just.
(2 of 15) [ COAP-26/1999]
(ii) Any other relief as may be deemed fit & proper by this Hon'ble Court."
2. This Court vide order dated 24/05/2002 framed following issues:-
(i) Whether the respondent No.1 was using the telephone of the Company in liquidation after the order of winding up dated 12.08.1994 and thereby committed an act of misfeasance (Applicant)
(ii) Whether the respondent No.1 retained the properties of the company after winding up order dated 12.08.94 unauthorizedly and liable to be refunded the same or their value alongwith interest ?
(Applicant)
(iii) Whether the company in liquidation suffered loss on account of not surrendering the mining lease by respondent No.1 and 2 to the O.L. and thus accountable ?
(Applicant)
(iv) Whether the respondents are liable to give account of the money received by them in advance Rs.50,61,300/- from Government of Rajasthan for supply of cement and whether they are liable to make payment of this amount alongwith interest ?
(Applicant)
(v) Whether the respondents are accountable for not recovering the amount from debtors and the persons whom the loans and advance were to be recovered ?
(Applicant)
(vi) Whether the respondents are liable to refund the remuneration received by them without approval of the Central Government ?
(Applicant)
(vii) Whether present application and any enquiry thereon are barred by limitation ?
(Respondents)
(viii) Whether present application under Section 543 is maintainable though all movable and immovable (3 of 15) [ COAP-26/1999] assets of the Company stand taken over under Section 29 of States Financial Corporations Act by the Rajasthan Financial Corporation prior to winding up orders ?
(Respondents)
(ix) Whether enquiry under Section 543 of the Company Act, 1956 is discretionary and deserves to be declined on account of long lapse of time between the date of the alleged incidents and the date of filing of the application ?
(Respondents)
(x) Whether requisite prior sanction was obtained before filing present application and if not what is the consequence ?
(Respondents)
(xi) Whether unrelated accusations and persons can be clubbed together in an omnibus application under Section 543 of Companies Act ?
(Respondents)
(xii) Whether the application is not maintainable for not being in prescribed form ?
(Respondents) "
3. Statements of Mr. RC Mishra, Official Liquidator and Mr. NC Jain, Chartered Accountant were recorded and they were cross- examined, whereafter counter affidavit was filed by Mr. Sanjay Modi on 02/05/2003 and his statement was recorded on 19/09/2011.
4. Learned counsel for the Official Liquidator has submitted general arguments relating to all the issues and has addressed on the charges which have been imbibed in the issues. In support thereof, the Official Liquidator filed an affidavit and placed on record the documents marked as Exhibits 1 to 5. No document was filed by the respondent in his counter affidavit.
(4 of 15) [ COAP-26/1999]
5. Relying on the Chartered Accountant's report, the Official Liquidator submits that after he had taken charge of the assets of the Company on 07/01/1997 and having received report of the Chartered Accountant on 04/08/1999, it was found that the respondent-Sanjay Modi had used telephone of the Company in liquidation after the order of winding up dated 12/08/1994 and thereby committed misfeasance.
5.1 In support thereof, the Official Liquidator relies photo copy of the telephone bill dated 01/08/1995 (Exhibit-2) for a sum of Rs.52,844/- in respect of telephone no.4360214 installed at the Company's Office at Mumbai. He also relies on another bill dated 01/10/1995 (Exhibit-3) of a sum of Rs.11,099/- received from Maha Nagar Telephone Nigam Limited, Mumbai to the Official Liquidator. It is his submission that respondent-Sanjay Modi was required to pay the aforesaid bills and after winding up order, the said Managing Director could not have used the telephone belonging to the Company; and did not get it disconnected. Information in this regard was also not given.
6. The second charge levelled and highlighted by the Official Liquidator is that respondent-Sanjay Modi, the Managing Director of the Company retained the properties of the Company in liquidation which he was liable to handover to the Official Liquidator after the winding up order. He retained the properties unauthorizedly. Shri N.C. Jain, Chartered Accountant, appointed by the Company Court, in his report (Exhibit-1) stated after investigation of the records of the Company in liquidation that in (5 of 15) [ COAP-26/1999] the year a proforma invoice dated 12/09/1995 for a sum of Rs.4,100/- (Exhibit-4) was received in the name of the Company in liquidation from Bombay Cycle Motors Agencies in regard to the maintenance and service contract of two air-conditioners belonging to the Company in liquidation. Mr. Sanjay Modi was in possession of the two air-conditioners and he was responsible for handing over the said two air-conditioners to the Official Liquidator but he retained the same unauthorizedly. It has also been stated by the Chartered Accountant in his report that one Ambassador Car and two Trucks belonging to the Company were not handed over to Rajasthan Financial Corporation alongwith the properties of the Company in liquidation when the possession had been taken over by Rajasthan Financial Corporation under Section 29 of the State Financial Corporation. The respondents have unauthorizedly retained the Ambassador Car as well as two Trucks belonging to the Company and they were liable to give the whereabouts of the said vehicles but they unauthorizedly retained the same and withheld the information in that regard. They are guilty of misfeasance. The respondents are liable to refund the value of the properties retained by them alongwith interest.
7. The third charge levelled and highlighted by the Official Liquidator is that the Company was having a lime stone mining lease in its favour within an area of 172 hectares at Banswara. The mining lease was allotted to the Company on 07/04/1984 by the State Mining Department. The respondents did not inform the Official Liquidator in regard to the said mining lease held by the (6 of 15) [ COAP-26/1999] Company in liquidation and further they did not make the payment of the lease rent amounting to Rs.2,96,358/-. Due to non-payment, the mining lease was terminated by the State of Rajasthan w.e.f. 30/04/1998. The Company in liquidation suffered loss on account of withholding of the information by the respondents in regard to the household mining rights. The Company in liquidation also suffered loss for not giving the lease deed and the details of the area to the Official Liquidator within time. The respondents failed to give this information even in the statement of affairs. Shri N.C. Jain, Chartered Accountant, in his report given on the basis of the record available with the Official Liquidator stated that the Company suffered loss due to negligence of the respondents. The respondents are liable to compensate the loss suffered by the Company on account of the negligence on their part.
8. The fourth charge levelled and highlighted by the Official Liquidator is that the respondents received a sum of Rs.50,61,300/- from the Government of Rajasthan for supply of cement against order No.1562-79 dated 13/04/1989. The Company supplied only 36 MT cement of the value of Rs.48,588.48. The Company has not given any account for the rest of the amount received by it. They are liable to refund the balance amount alongwith interest. In this regard, Government of Rajasthan filed a claim before the Official Liquidator for a sum of Rs.125.55 Lakhs vide letter dated 15/04/1995 (Exhibit-5). The respondents misappropriated the aforesaid amount of the (7 of 15) [ COAP-26/1999] Company in liquidation in as much as they have not given any account of the same. Initially, the record had not been given by the respondents to the Official Liquidator. Rajasthan Financial Corporation has handed over certain incomplete records to the Official Liquidator on 12/12/1998. The respondents are personally liable to compensate the Company in liquidation for not handing over the records of the Company to the Official Liquidator. They are also liable to give the balance amount of Rs.50,12,711.52 alongwith interest at the rate to the Official Liquidator under the directions of this Court.
9. The fifth charge levelled and highlighted by the Official Liquidator is that the respondents did not recover the amount from the sundry debtors and the amount which was to be recovered as per the Balance Sheet for the year 31/03/1989 (Exhibit-6). The Company in liquidation was having sundry debtors to the tune of Rs.7,25,475.00 and this amount is recoverable. The respondent no.1 submitted statement of affairs to the Official Liquidator on 05/08/1999. The requisite assets and liabilities position given in the statement of affairs is as on 31/03/1989 instead of as on winding up order dated 12/08/1994 had been passed and therefore, the same is a defective statement of affairs. Further details of the amount to be recovered was neither provided nor they took any steps for the purpose of recovery of the said amount. The respondents allowed the recovery to become time barred. The respondents are accountable for making payment of the aforesaid amount alongwith interest. The (8 of 15) [ COAP-26/1999] respondents received a remuneration of Rs.91,6000/- and Rs.21,600/- during the financial years 1988-89 and 1987-88 respectively without approval of the Central Government which is recorded in the copy of published Annual Audited Accounts for the year ended 31/03/1989. The respondents are liable to refund the amount to the Official Liquidator.
10. The respondent NO.1-Mr. Sanjay Modi also sbumtited his statement and his cross-examination was conducted.
11. The issues in the case are being decided as under:-
11.1 Issue No.1:- Having noted the submissions of learned counsel for the Official Liquidator, this Court finds that the respondent No.1 has submitted in his statement that after closing down operation of the Company, all the bills relating to the telephone, have been paid by him. That telephone facility got disconnected in the year 1995 and he made arrangement for payment of bill as and when they were handed over to him including what has been claimed by the Official Liquidator and the respondent cannot be said to have committed any act of misfeasance. Thus, the issue no.1 is decided against the applicant.
11.2 Issue No.2:- As regards the air-conditioners and properties of the Company, the respondent has stated that the air-
conditioner was installed in the office of the Managing Director and was used by him only as Managing Director of the Company. The premises were on lease deed basis and were vacated consequent to order of the Court and all the permanent fixtures were (9 of 15) [ COAP-26/1999] abandoned. It is his submission that there was no intention to retain the properties of the Company and if required, he is ready to pay the market value of the air-conditioners. With regard to the vehicles lying with the Company, the Managing Director, in his statement under Rule 130 of the Companies (Court) Rules, admitted of having possession of the vehicles. However, it is stated that they were not in his personal possession but with the Company and once the Rajasthan Financial Corporation had taken over all the movable and immovable assets and it did not point out any variance nor it has filed any complaint with regard to the vehicles, it cannot be said that the respondent has retained vehicles with him.
Having noted above, this Court finds that while the respondent, in his possession, has the vehicles as stated by him under the statement made under Rule 130 of the Companies (Court) Rules, he would be liable to refund the value of the vehicles and the air-conditioners alongwith interest and the issue no.2 is partly answered in favour of the applicant. 11.3 Issues No.3 & 4:- Both the issues relate to the loans caused to the Company. As regards the mining lease, respondent's case is that the Rajasthan Financial Corporation informed him relating to mining lease which was for a period of 20 years w.e.f. 01/03/1984 and stood vested in Rajasthan Financial Corporation. The Rajasthan Financial Corporation did not surrender the same to the Official Liquidator and after closing down of the Company, the (10 of 15) [ COAP-26/1999] mining lease remained inoperative. It was not the case where the respondent had operated the lease for his personal benefits.
So far as the advance received from Indira Gandhi Nahar Project, it is submitted that on account of labour problems, disruption of power supply and breaking down of machinery and want of proper instructions from the Government relating to ISI specifications, marking, packing etc, the Company was not able to adhere to the time schedule and the State Government proceeded to lodge complaint relating to the post dated cheques. The answering respondent did not received or used the said advanced amount for his personal benefit. He was stationed in Bombay and was associated with policy making only. All records were taken over by the Rajasthan Financial Corporation and the Rajasthan Financial Corporation had also taken possession of all the movable and immovable assets. The Rajasthan Financial Corporation did not point out any variance nor it has filed any complaint with regard to the vehicles. The Company had become in-operational in a year. The statement, which he has made, was based on impression and recollection of the past and the actually the assets and functions were controlled by the persons who were recruited for the purpose at the factory site. As regards not taking steps for recovering loans, a submission has been made that the parties, who were dealing with the Company, stopped fulfilling their obligations once they found the ship to be shrinking. The net worth of the Company had completely been eroded and no funds were available nor any fund was advanced from financial (11 of 15) [ COAP-26/1999] institutions and the Company was not in a position to take any liability for initiating legal proceedings.
Having noted, this Court finds that there are facts which are on record from which it is apparent that the Managing Director, on account of his actions/inactions, has caused loss to the Company in liquidation and due to his action of not repaying the amount to the Government, the Company has been put in a debt. Merely by stating that the was placed in Mumbai during the relevant period, would not absolve him from his liability towards the Company in liquidation. He would be deemed to have knowledge of all financial matters of the Company. Similarly, non-surrender of the amount, the company has suffered loss for which the respondent is liable. The explanation put up by the respondent, as noted above, is without any basis and without any supportive document. In the circumstances, the issues no.3 & 4 are answered against the respondent.
11.4. Issue No.5:- The firth issue with regard to the respondent being accountable for not recovering the amount from the debtors and the persons to whom the loans and advances were not recovered, this Court is of the firm view that the respondent ought to have acted diligently and it was his duty to recover the amount from the debtors. Huge loans and advances have been made during his tenure amounting to Rs.7,25,475/- and Rs.65,75,658/-. The mining lease, which was one of the important assets of the Company, was cancelled by the State Government on account of inaction of the respondent. The assets of the Company have been (12 of 15) [ COAP-26/1999] whisked away and as has been noted by the Chartered Accountant in his report, it has not been denied by the respondent. The amount of the Company had been siphoned out by giving advances to the other companies wherein the Managing Director was interested. The excuse of the respondent that he did not have sufficient funds to take up recovery proceedings, is a lame excuse and not acceptable.
11.5 Issue No.6:- The sixth issue with regard to the charge levelled against the respondent is to the effect of having received remuneration for the year 1988-89, 1987-88 as Rs. 91,600 and Rs.91,600/- respectively without approval from the Central Government which was in violation of Section 198(4) of the Companies Act as there was no profit in the financial year and remuneration could have been taken only after approval from the Central Government. The Company, being a Public Company, provisions of Section 198(4) and Section 309(3) of the Companies Act, 1956 were required to be followed. The amount of Rs.91,600/- had been paid to Lt. Gen. Ranbeer Singh in his capacity as Executive Director while Rs.21,000/- was paid to the respondent on account of his being Managing Director and the respondent, therefore, cannot be held liable for them. In view of the aforesaid explanation, this Court does not find that the Managing Director has committed any fault in receiving salary for the said period and, therefore, the issue no.6 is decided in favour of the respondent.
(13 of 15) [ COAP-26/1999] 11.6. Issues No.7 & 8:- These issues have also been framed by the Court and the onus for proving the said issues was on the respondent. However, no submission with regard to non- maintainability of the objection before the High Court has been advanced by counsel for the respondent. No documentary or legal submissions have been made. In the opinion of this Court, the enquiry under Rule 543 can be taken up as soon as the information is received by the Official Liquidator and the present company application cannot be said to be barred by limitation.
As regards the other submission that because the assets had been taken over by the Rajasthan Financial Corporation under Section 29 of the State Financial Corporation Act, the present company application under Section 543 is not maintainable, is misconceived. The provisions of Section 543 of the Companies Act cannot be addressed under the State Financial Corporation Act. The issues no.7 & 8 are , therefore, answered against the respondent.
11.7. Issues No.9 & 10:- The issues no. 9 & 10 relate to the question whether enquiry under Section 543 of the Companies Act was discretionary and deserves to be declined on account of lapse of time and whether prior sanction was obtained. In the opinion of this Court, the discretion relating to enquiry under Section 543 of the Companies Act is a judicial discretion and merely because there is a long lapse of time, the person, who has misconducted himself, cannot run away from the clutches of law and as oon as the same is noticed, the action has to be taken under Section 543 (14 of 15) [ COAP-26/1999] of the Companies Act and the said person cannot take advantage of long lapse of time. In the opinion of this Court, prior sanction before filing the company application is not required. 11.8. Issues No.11 & 12:- The issues no.11 & 12 have become irrelevant in view of the accusation being levelled as against the respondent No.1 along and the application having been filed and entertained, cognizance having been taken and the same, therefore, are answered against the respondent.
12. Having noted above, this Court finds that the respondent- Sanjay Modi has been guilty of breach of trust in relation of the Company being Managing Director of the Company and has become liable and accountable for the properties of the Company in terms of Section 543_A and 543-B of the Companies Act, 1956 and having examined his conduct, he is held liable to repay the amount to the Company to the tune of Rs.125.55 lac; Rs.65,25,658/-, Rs.7,25,475 shown as advances and loans. He is also required to pay a some of Rs.52,844/- and Rs.11,099/- relating to the telephone charges; and cost of the air conditioners which is assessed at Rs.25,000/-. (In total Rs.1,98,95,076/-). The amount shall carry interest at the rate of 12% per annum from this date upto the date of recovery.
13. The amount, as ascertained above, shall be recoverable from respondent No.1-Mr. Sanjay Modi as well as from his family members from all assignees etc. and their properties/assets which shall be attached by the Official Liquidator for recovery and the Official Liquidator is empowered to take all steps for the said (15 of 15) [ COAP-26/1999] purpose of recovering the said amount and if it is found that he has sold or disbursed his personal properties in any manner during the pendency of the proceedings before the BIFR or thereafter, the same be also recovered from the subsequent purchasers or assignees etc.
14. The company application is disposed off accordingly.
SANJEEV PRAKASH SHARMA)J. Raghu/