Andhra HC (Pre-Telangana)
Global Drugs P. Ltd. (In Liquidation) vs M. Venkatanarayana And Ors. on 7 December, 2007
Equivalent citations: [2008]141COMPCAS935(AP), [2008]84SCL120(AP)
JUDGMENT V.V.S. Rao, J.
1. This application is filed under Section 454(5) and (5A) of the Companies Act, 1956 ("the Act", for brevity) praying this Court to take cognizance of the offence committed by accused Nos. 1 to 4 under Section 454(5) of the Act and to summon the accused for being tried and punish in accordance with Sub-sections (5) and (5A) of Section 454 of the Act for having wilfully and deliberately not complied with the requirements under Sub-sections (1), (2) and (3) of Section 454 of the Act.
2. M/s. Global Drugs P. Ltd. was directed to be wound up by this Court by order dated April 5, 2005, made in R.C.C. No. 1 of 2004. The official liquidator attached to this Court was appointed as liquidator in terms of Section 449 of the Act. He filed affidavit in support of the application herein. It is stated that as per the information gathered from the Registrar of Companies, Hyderabad, accused are officers/directors of the company on the date of the order of winding up, that accused Nos. 1 and 2 are on the board since the date of incorporation dated October 12, 988, and that accused Nos. 3 and 4 were appointed as directors of the company with effect from November 3, 1992, and November 21, 1997, respectively. The notice under Section 454 of the Act dated May 12, 2005, sent by the official liquidator, was returned unserved with remarks "not claimed" in respect of accused Nos. 1, 2 and 3, and "addressee left" in respect of accused No. 4. It is stated that accused Nos. 1 to 4 are required to file statement of affairs within twenty-one (21) days from April 5, 2005, i.e., the date of winding up order and the last date for filing statement expired on April 26, 2005 and the default is continuing as such. Therefore, the accused are liable to be punished under Section 454(5) of the Act.
3. Initially the case is filed against four accused. As the summons were served on accused Nos. 3 and 4 and the summons sent to accused Nos. 1 and 2 were not served, this Court directed the official liquidator to file application to split up the case against accused Nos. 1 and 2. The official liquidator filed application and accordingly case against accused Nos. 1 and 2 is being tried in Company Application No. 619 of 2006, separately.
4. Accused Nos. 3 and 4, who are being tried in this C.A. No. 254 of 2006, were examined under Section 251 of the Criminal Procedure Code, 1973, and they pleaded not guilty. The trial was therefore proceeded with. The company paid assistant in the office of the official liquidator himself was examined as PW1 and marked exhibits P1 to P11 After completion of prosecution evidence, accused Nos. 3 and 4 were examined under Section 313 of the Code of Criminal Procedure on November 1, 2007. They denied the charge and stated that they have not contravened the provisions of Section 454 of the Act. They did not adduce any evidence.
5. The lone witness PW1 is the company paid assistant. She deposed that she has no personal knowledge about the background of the case and that she is deposing on the basis of records. Exhibit A2 is annual return for the year 1999 filed as per Section 159 of the Act. Exhibit A3 is Form No. 32. She also reiterated the complainant's case as disclosed in the application-affidavit. She also deposed that after filing the complaint, accused Nos. 3 and 4 approached the official liquidator on August 19, 2006, to request for books of account for inspection. These letters are marked exhibits A9 and A10. The official liquidator sent a reply exhibit A11 dated September 14, 2006, informing that books of account are not available. In the cross-examination she was asked whether or not leave or permission of the company court was obtained to issue exhibit A4 notice calling upon accused Nos. 3 and 4 to file statement of affairs but she stated that the complaint was filed after obtaining Form No. 32 from the Registrar of Companies. She was confronted with exhibit B1 annual report for the year 2002, according to which only accused Nos. 1, 2 and 4 and one Vara Prasad are directors. Exhibit B1 also shows that accused No. 4 was appointed as a nominee director on August 21, 1997 and as per exhibit B2 annual return for the year 2001-02, accused No. 4 resigned as director during that year. PW1 was also confronted with exhibit B3 Form No. 32 issued by the Registrar of Companies. She also deposed that they did not produce any record to show that accused No. 3 was in custody of books of account and that accused No. 3 has reasonable excuse for not filing the statement of affairs. It was also admitted that exhibit A4 notice was not served on accused Nos. 3 and 4.
6. The case of prosecution rests on exhibit A2 annual return for the year 1999. According to this, accused Nos. 3 and 4 are shown as directors. The former was appointed on November 3, 1992, and the latter was appointed on August 21, 1997. Exhibit A3 is Form No. 32 dated September 22, 1998, and obviously it does not contain the names of accused Nos. 3 and 4 in column No. 1 thereof. It contains the names of four directors, from the date of incorporation. Exhibit A4 dated May 3, 2005, is the notice issued by the official liquidator to the accused calling upon them to explain as to why action should not be taken against them under Sub-sections (5) and (5A) of Section 454 of the Act. As per exhibit A2, accused No. 3 is a resident of Plot No. 90, Jawahar Colony, KPHB, Kukatpally, Hyderabad, whereas in the subsequent Form No. 32 dated September 3, 1993, accused No. 3 is shown to be resident of D3, Shilpa Apartments, Gurunanak Marg, Patamata, Vijayawada. Curiously, the notice exhibit A4 was sent to the address mentioned in exhibit A2 as seen from exhibit A7 returned postal cover, and not to Vijayawada address. In exhibit A2, accused No. 4 is shown to be resident of Flat No. 141, Kalyan Nagar, Hyderabad.
7. It is the case of accused No. 3 that he resigned as director of the company with effect from March 31, 2001 and it is the case of accused No. 4 that he resigned as director of company with effect from August 1, 2001. There is no dispute that accused Nos. 3 and 4 were appointed as directors on November 3, 1992 and August 21, 1997. In support of the evidence that they resigned as directors by 2001 itself, reliance is placed on exhibit X3, annual report of the company for the year 2002, and exhibit X4, balance-sheet as at March 31, 2002. Accused No. 4 summoned the Registrar of Companies. RW1 was authorised by the Registrar of Companies, who gave evidence and produced records. He admits that exhibit X2 letter was sent by the company to Registrar of Companies on August 28, 2001, along with Form No. 32 showing that accused No. 4 was ceased to be director of the company with effect from August 1, 2001.
8. Therefore, the main question that arises for consideration is whether accused Nos. 3 and 4 are officers and directors of the company liable to file statement of affairs as required under Section 454(1) read with Section 454(3) of the Act? The other question that requires to be considered is whether accused Nos. 3 and 4 are liable to file statement of affairs within 21 days after receiving the official liquidator's notice under exhibit A4? These may be considered under separate headings as below.
(i) Whether accused Nos. 3 and 4 are directors, managers or secretaries or chief officers of the company on the relevant date:
9. Sub-section (8) of Section 454 of the Act defines the expression "the relevant date" means, the date of winding up order of the company. This Court in R.C.C. No. 1 of 2004 passed orders on May 4, 2005, directing winding up of the company. There is evidence to show that accused No. 3 ceased to be director with effect from March 31, 2001 and that accused No. 4 ceased to be director with effect from August 1, 2001. Therefore, they are not directors/managers, etc., as on relevant date, liable to file statement of affairs within 21 days from the date of winding up order.
(ii) Whether accused Nos. 3 and 4 are/or have been officers of company:
10. Sub-section (30) of Section 2 of the Act defines "officer" includes any director, manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act. Accused No. 3 joined the board of directors of the company on November 3, 1992, and accused No. 4 joined on November 21,1997. Whether the board of directors of the company was accustomed to act as per their instructions? There is no averment either in the affidavit accompanying the complaint or in the statement of PW1 to show that the board of directors were acting under the dictates of accused Nos. 3 and 4. Hence accused Nos. 3 and 4 do not fall under the category of "officer" of company in liquidation.
(iii) Whether accused Nos. 3 and 4 took part in the formation of the company or employees of the company at any time within one year before the relevant date:
11. The company was incorporated on October 12, 1988. Exhibits A2, X3 and X4, annual report/balance-sheet would confirm this. Therefore, accused Nos. 3 and 4 cannot be said to have taken part in formation of company or employees of the company within one year before the relevant date. Hence accused Nos. 3 and 4 are not liable even under this category.
(iv) Whether accused Nos. 3 and 4 are liable to file statement of affairs?
12. It is now settled law that two categories of persons are required to file 12 statement of affairs. Sub-section (2) of Section 454 of the Act describes one category of persons. These are directors, managers, secretaries and chief officers of the company on the relevant date. The second category of persons are those enumerated in Clauses (a) to (d) in Sub-section (2) to Section 454 of the Companies Act. The second category of persons are not as such required to file statement of affairs within 21 days from the date of winding up order. They are required to file statement of affairs only when the official liquidator, subject to direction of this court, requires them to submit the statement of affairs. This is the view taken by this Court in Official Liquidator, High Court, Andhra Pradesh v. Koganti Krishna Kumar , it was held therein (page 677):
The second category of persons are those specified in Clauses (a), (b), (c) and (d) of the said Sub-section (2) in respect of whom 'the official liquidator, subject to the direction of the court, may require to submit and verify the statement'. Clause (a) of Sub-section (2) might give rise to some confusion because it says, 'who are or have been officers of the company' and thereby includes not merely those who have been officers of the company but also those who are officers of the company, that is to say, directors of the company and the manager, secretary or other chief officer of the company on the relevant date who form part of the first category mentioned above and on whom a duty to submit and verify a statement has already been imposed. I am of the view that in the case of those persons falling under the first category mentioned above, the duty to submit and verify a statement does not depend upon any direction of the court or a notice from the official liquidator requiring them to submit and verify the statement. In the case of all others falling under the second category mentioned above, the duty to submit and verify the statement arises only when there is a direction of the court or when the official liquidator issues notice requiring them to submit and verify the statement. I am also of the view that the time limit specified in Sub-section (3) can have application only to the officers of the company falling under the first category mentioned above, i.e., those who are directors of the company on the relevant date and the manager, secretary or other chief officer of the company on the relevant date, because their obligation to submit and verify the statement springs into existence from the relevant date and does not depend upon any direction of the court or notice from the official liquidator.
(emphasis supplied)
13. The above view was reiterated in Sunrise Oleo Chemicals Ltd. v. M.U.S. Rao .
14. In this case there is no dispute that after advertising/publishing winding up order the official liquidator issued exhibit A4 notice to the accused. A perusal of exhibit A4 notice would show that though it is described as, "notice to submit statement of affairs under Section 454 of the Act", curiously it is a show-cause notice sent to all the accused including accused Nos. 3 and 4 calling upon them to explain within seven days from the date of receipt of the said letter as to why the official liquidator should not initiate necessary action against them under the Act. It can always be argued that there was no letter of request/advice by the official liquidator asking accused Nos. 3 and 4 to submit and verify statement of affairs. Such an argument would be valid because Section 454(2) of the Act enables the official liquidator to require second category of directors/officers/persons to submit statement of affairs and does not require to issue show-cause notice of prosecution. On this ground alone the prosecution must fail.
15. Assuming that exhibit A4 is a letter requiring accused Nos. 3 and 4 to file statement of affairs, does it help the prosecution? Sub-section (1) of Section 454 of the Act stipulates that statement of affairs should contain the following particulars: assets of the company (cash balance in hand/bank), negotiable securities, debts and liabilities, a list of creditors, debts due to the company and such other information as may be required by the official liquidator. Can a person falling in second category who is not capable of giving information on above lines be held liable for filing statement of affairs? The answer must be in the negative.
16. The law presumes that the directors/managers and secretaries and chief officers on the date of winding up of the company are capable of giving information and therefore makes it mandatory for them to file statement of affairs. The same is not the case with other categories of the persons who can be required by the official liquidator, subject to direction of the company court, to file statement of affairs. This is well-settled. In Official Liquidator, High Court, Andhra Pradesh v. Koganti Krishna Kumar , this Court ruled that, "though a former director can be required to submit statement of affairs, it must be shown that he was in a position to do so in the sense, he has capability of giving information". Referring to Rules 124 and 125 of the Companies (Court) Rules, 1959, and Form No. 56 thereof, this Court also came to the conclusion that, "unless a person is shown to have intimate knowledge of the affairs of the company or is in possession of any assets, books or papers of the company, and has all wherewithal to submit statement of affairs, such a person cannot be required to file statement of affairs". Reliance was placed by this Court on the phrase "without reasonable excuse", which pervades Section 454(5) of the Act creating culpability of contravention. Reference was made to a decision rendered by Justice A.M. Ahmadi of Gujarat High Court (as his Lordships then was) in Official Liquidator, Trimurthy Agro-Chemical Ltd. v. Niranjan Jayantilal Tolia [1984] 56 Comp Cas 380, wherein it was held as below (page 390):
The expression 'reasonable excuse' means an excuse which a reasonable person considers just and acceptable in the circumstances of the case, that is, which appeals to the reason of a reasonable man. In other words, the excuse must be such as may appear to be probable in the facts and circumstances of the case to a prudent, and not to a gullible person. The evidence on record clearly shows that he did not attend any of the board meetings after March 28, 1974. That was his stand from the very beginning as is evidenced from the telegram sent immediately on receipt of notice under Rule 124 of the Rules. The statement of affairs of the company has to be filed in the prescribed Form No. 57. A bare perusal of the form shows that only a person having intimate knowledge about the affairs of the company would be able to furnish the host of information required thereunder. It is true that the accused could have inspected and did inspect the account books of the company but a mere perusal of the accounts would not enable him to supply the particulars demanded thereunder. I am, therefore, of the opinion that even if accused No. 3 continued to be one of the directors of the company, he was not in a position to submit the statement of affairs in the prescribed form as he had no intimate knowledge regarding the affairs of the company since 1974. In these circumstances, I am not inclined to think that the prosecution has proved that accused No. 3 committed a default in complying with the requirements of Section 454 of the Act without reasonable excuse.
(emphasis supplied)
17. In this case no material is placed before this Court to show that accused Nos. 3 and 4 had intimate knowledge or in possession of the books of account and papers of the company and that they had reasonable excuse for not filing the statement of affairs. The burden was on the prosecution to prove this, but they failed. Indeed as admitted by PW1, the complaint was filed only based on exhibit A2--annual report for 1999, and subsequent annual reports were not verified by the official liquidator.
18. In the result, for the above reasons, this Court is satisfied that the facts alleged against accused Nos. 3 and 4 do not constitute an offence under Section 454(5) of the Act. They are entitled to be exonerated.
19. Company Application No. 254 of 2006 is accordingly dismissed. Accused Nos. 3 and 4 are acquitted under Section 255(1) of the Criminal Procedure Code, 1973.