Rajasthan High Court - Jaipur
Official Liquidator Of Shubh Laxmi ... vs Brij Mohan Gogna And Anr. (No. 2) on 15 September, 2006
Equivalent citations: [2007]135COMPCAS547(RAJ), [2007]77SCL107(RAJ)
JUDGMENT Shiv Kumar Sharma, J.
1. By way of judge's summons taken out under Section 543 of the Companies Act, 1956 (for short "the Act") the official liquidator has prayed for an order:
(i) the non-petitioners be held to be liable jointly and severally and they be directed to restore immediately the money and other properties, assets, actionable claims of the company in liquidation, as appearing in the balance-sheet dated June 30, 1981, amounting to Rs. 11,96,091 forthwith to the official liquidator along with interest and other relief in the form of damages as the hon'ble court may deem just, proper and expedient in the facts and circumstances of the present case ;
(ii) the non-petitioners be further directed to contribute such sum to the assets of the company in liquidation by way of compensation as may be thought fit and proper in the facts and circumstances of the present case ;
(iii) the non petitioners be further directed to immediately restore to the official liquidator the properties and assets of the company in liquidation which the company may have come into possession of the same during the conduct of the business of the company after June 30, 1981, till the date of passing of the winding up order by this Court, i.e., May 5, 1989.
2. Contextual facts depict that M/s. Subh Laxmi Savings and Finance Private Limited having its head office at Gopalji Ka Rasta, Johari Bazar, Jaipur and branch offices at Naya Bazar, Ajmer, Gumanpura, Choraha Kota, Jalori Gate, Jodhpur and Alakh Sagar Road, Bikaner was directed to be wound up vide order dated May 5, 1989. The non-petitioners Brij Mohan Gogna and Dhanna Lal Sharma were directors of the company. The official liquidator was required to take all proceedings for winding up as per provisions of the Act to take charge of all the properties and assets of the said company. The ex directors of the company in liquidation retained all the assets movable and immovable properties of the company in liquidation. The non-petitioners are guilty of misfeasance and breach of trust in relation to company in liquidation. Though the non-petitioners are criminally liable for the offences committed by them under various sections of the Act including Sections 538 and 539, however the present application under Section 543 of the Act is being filed within the limitation as prescribed.
3. The Registrar of Companies had filed winding up petition alleging that the company is irregular in filing its statutory returns, balance-sheets and such the company and its directors are acting in contravention of the provisions of the Act and the company is commercially insolvent and is unable to pay-off its debts in full. Shri Om Prakash Agarwal, UDC and Shri Heera Ballabh, LDC were appointed under Section 457(2)(v) of the Act to take over the possession of the company, they went at the registered address of the company and gave a report that company has gone away five to six years back after vacating the premises and the premises are in possession of one Shri Shyam Printers (Press). There was no assets of the company. The statutory notices sent to non-petitioners for submitting statement of affairs of the company in liquidation received back undelivered. Ultimately on a notice, Shri Dhanna Lal (non-petitioner No. 2) submitted his reply on June 27, 1991, that he resigned from the said company from October 1, 1979, nothing remained in his possession and there is no due against him of the company. The resignation of non-petitioner No. 2 is not according to law and there is no evidence of acceptance of the same. No return was submitted by the directors in Form No. 32, nor is there any endorsement of such resignation. Therefore, the story of resignation is after thought and has no value and consequence. The ex-directors have not handed over record, account books, details of bank accounts and assets or properties of the company in liquidation. The application under Section 457(1) of the Act has already been filed on November 14, 1991.
4. On the application of official liquidator, vide order dated February 3, 1992, Shri N. C. Jain, chartered accountant, was appointed to investigate into and report the acts of misfeasance committed by any of the officers of the company in liquidation. The report was submitted on April 25, 1994, and submitted that the non-petitioners managed the affairs of the company from July 18, 1983 to May 5, 1989, last balance-sheet was duly audited on June 30, 1981. The company is contravening the various guidelines of the Reserve Bank of India. The estimated losses were resultant to the payment of high rate of commission to the commission agents for purposes of procuring the deposits from the public. The chartered accountant also clarified that the directors are the agents of the company and to some extent trustees also. The directors who were controlling the affairs of the company are liable to the company jointly and severally. The ex-directors have retained the properties of the company in liquidation and they are accountable for the same. The ex-directons are guilty of misfeasance and breach of trust in relation to the company.
5. Mr. Dhanna Lal, ex-director of the company in liquidation filed reply and stated that he already resigned from the company on October 1, 1979, and he was not managing the affairs of the company. He never retained movable and immovable properties and after his resignation the same were under the control of non-petitioner No. 1. He submitted that he had no knowledge about the application under sections 439(5) and 433(e) of the Act. He also submitted that it is not the duty of the chartered accountant to explain the duties and powers of the directors, the same have been laid down in Legislature in the Act itself. He further submitted that he was a LDC in a private institution earlier and now he is UDC having 3 children, out of them one daughter is yet to get married. Lastly, prayed to dismiss the application. Non-petitioner No. 1, submitted his reply and submitted that winding up petition itself was not at all maintainable. The business of the company was closed in around year 1980-81 due to restriction imposed by the Reserve Bank of India on chit fund companies. At the time of order of winding up no business whatsoever was being done by the company. Statement of affairs of the company could not be filed as the non-petitioners were out of station and the notices were not served upon them. The non-petitioner Brij Mohan Gogna appeared before the official liquidator on December 10, 2001, and his statement had also been recorded, wherein he stated that no assets/properties/account books of the company has been retained by him. The records and account books of the company were destroyed because the land lord of the premises, where the company was running, had forcefully and unlawfully taken possession of the office and the records and account books were not handed over to non-petitioner, as such the company was not having any assets at the time of closure and the same could not be made available to the applicant. Since the records and account books of the company were already destroyed in the year 1982, the non-petitioner has not committed any offence under Section 454 of the Act. Lastly, prayed to dismiss the petition.
6. Mr. Gopal Garg, learned Counsel appearing for the official liquidator after extensively reading from the points of claim in support of judge's summons contended that the provisions of Section 543(1) of the Act are applicable to the facts of the case and ex-directors must be compelled to make good money with interest which they have retained or become liable or accountable for the property of the company in liquidation.
7. Per contra, learned Counsel for the non-petitioners after reading excessively from the reply filed by ex-directors, canvassed that the points of claim being totally vague, general and the official liquidator having failed to make out any case against the individual directors, the application deserved to be rejected.
8. In order to establish the charge of misfeasance against the ex-directors it is required that specific acts of commission or omission and/or negligence on the part of each directors are pointed out ; the loss arising to the company as a result of such specific act of commission or omission or negligence shall also have to be quantified-as the order of recovery from such a director would be based on the said qualification. The liability under the provision though in the nature of tortious liability, it yet is quasi-criminal in nature and it is a particular director who has caused loss to the company by his act which would amount to misappropriation, breach of trust, misappropriation or retention of monies/properties of the company who would be called upon to make good such loss. Thus, the onus is on the person who alleges such acts of misfeasance. The onus has to be discharged by cogent, reliable and specific evidence which should prove that the alleged misconduct was willful and amounted to misfeasance with culpable negligence.
9. In Official Liquidator v. Raghawa Desikachar , their Lordships of the Supreme Court indicated thus (page 142):
It may be mentioned that misfeasance action against the directors is a serious charge. It is a charge of misconduct or misappropriation or breach of trust. For this reason the application should contain a detailed narration of the specific acts of commission and omission on the part of each director quantifying the loss to the company arising out of such acts or omissions. The burden of proving misfeasance or non-feasance rests on the official liquidator. The official liquidator, it may be mentioned, merely relied upon the evidence recorded in public examination of the directors and on a few documents tendered in evidence. At the stage of public examination there was no charge of misfeasance against the directors and they were not in a position to know what would be the grounds that would be alleged against them for recovering any amounts for the loss said to have been caused to the company by reason of such misfeasance.
10. Following principles were laid down by the Supreme Court in Official Liquidator, Supreme Bank Ltd. v. P.A. Tendolkar :
It is certainly a question of fact, to be determined upon the evidence in each case, whether a director, alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be held liable for conniving at fraud and misappropriation which takes place. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled to make good the losses incurred by the company due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable frauds to be committed and losses thereby incurred by the company.
11. The meaning of misfeasance is the improper performance of some act which a person may lawfully do. A director while carrying out an activity which he is otherwise empowered to carry out under the law, performs it in such a manner that the same is improper and such impropriety has to be willful so as to cause loss to the company. The act of commission or omission or negligence should be with the intent and knowledge to cause loss to the company and at the same time resulting in personal gain. Not all acts which result in loss to the company can be treated as acts of misfeasance, making a director liable under Section 543 of the Act because while carrying on business there is every likelihood that loss may be incurred in a transaction or a number of transactions. It is only when such loss to the company results in wrongful gain to the director that it would fall within the scope of Section 543 of the Act.
12. It is therefore to be seen as to whether the respondents individually or jointly had committed any specific act of commission or omission or had misapplied or retained any monies/properties of the company in liquidation.
13. Shri Dhanna Lal, non-petitioner No. 2, had already cleared that he already resigned from October 1, 1979. As also Shri Brij Mohan Gogna, non-petitioner No. 1 submitted that the company was already closed in the year 1980-81 due to restriction imposed by Reserve Bank of India on chit fund companies and no business whatsoever was being done by the company. Further, the records/account books were destroyed since the premises, where the company was being run, was vacated by the land lord forcefully and the same were not returned to the ex-director.
14. Evidently, from the evidence adduced by the official liquidator there does not appear any single act which can be said to have been committed by a particular director within the meaning of the provisions of Section 543(1) of the Act. Thus, no relief can be granted to the applicant in the absence of any cogent material on record. On the basis of vague and bald allegations it is not possible to hold that the provisions of Section 543(1) are applicable.
15 The company application stands accordingly rejected without any order as to costs. Notice discharged.