Andhra HC (Pre-Telangana)
M/S.Vertex Stock & Shares Pvt. Ltd., (In ... vs 1) Sri Vemuri Venkatewara Rao, Ex. ... on 27 September, 2018
Bench: Ramesh Ranganathan, A. Rajasheker Reddy
THE HONBLE SRI JUSTICE RAMESH RANGANATHAN, THE HONBLE SRI JUSTICE A. RAJASHEKER REDDY,AND THE HONBLE SRI JUSTICE M. SATYA
Company Application No.814 of 2001,
27-09-2018
M/s.Vertex Stock & Shares Pvt. Ltd., (In liquidation) rep. by the Official Liquidator, High Court of A.P., Hyderabad..Compl
1) Sri Vemuri Venkatewara Rao, Ex. Director, 3-2-Jagdeep Apts, Moghlrajpuram, Vijayawada & Anr. . Accused
!Counsel for the Complainant: Sri M.Anil Kumar, Learned
Counsel appearing for the
Official Liquidator.
^Counsel for accused: Sri P.Vikram, Learned Counsel.
<GIST:
>HEAD NOTE:
? Citations:
1) 2002 (4) ALD 637 (DB)
2) ILR (1974) 1 Delhi 809 = [1974] 44 Comp Cas 499 (Delhi) (FB)
3) (1898) (1) Q.B. 573
4) 1993 (3) ALT 542 = (1997) 89 Comp Cas 672 (AP) = 1994 CriLJ 797
5) (1979) 49 Com Cas 81 = 1979 Tax LR 1640
6) (2001) 3 SCC 13 = AIR 2001 SC 938
7) (2006) 2 All ER 735
8) [1973] AC 435
9) (2007) 2 SCC 365
10) (2003) 7 SCC 589
11) (2003) 7 SCC 628
12) AIR 1937 Bombay 28
13) (2011) 4 SCC 266
14) AIR 1950 SC 265
15) AIR 1992 SC 1
16) 1946(1) AllER 255 = 1946 AC 278
17) 19 Q.B. D. 629, at p.638
18) (2004) 9 SCC 686
19) (2004) 11 SCC 625
20) (1843-60) All ER Rep. 403 = 42 ER 647
21) (2001) 4 SCC 534
22) (2013) 3 SCC 117
23) (2001) 5 SCC 407
24) 1953 SCR 1 = AIR 1952 SC 369
25) (2001)8 SCC 676
26) (2001) 8 SCC 540
27) (1964) 7 SCR 539
28) (1899)2 QB 158
29) (2004) 5 SCC 518
30) (2014) 3 SCC 92
31) AIR 2013 SC 30
32) (Judgment of the Calcutta High Court (Appellate Side) dated 10.11.2014)
33) (2002) 7 SCC 358
34) (1997) 6 SCC 312;
35) (1986) 4 SCC 746 = (1987) 1 SCR 317
36) AIR 1992 SC 96
37) AIR 2003 SC 1405
38) JT 2004(10 SC 349
39) (1955) 1 SCR 158 : AIR 1954 SC 496 : 1954 Cri LJ 1333
40) (1980) 1 AllER 529 (HL)
41) (2014) 2 SCC 62 : (2014) 1 SCC (Cri) 721
42) (2018) 7 SCC 260
43) AIR 1943 Patna 245
44) AIR 1951 SC 207
45) (2008) 2 SCC 492
46) AIR 1961 SC 986
47) (1964) 5 SCR 37 : AIR 1964 SC 1541 : (1964) 2 Cri LJ 468
48) (2004) 4 SCC 432
49) (2012) 6 SCC 228
50) 2014 Crl.L.J. 80
51) (2012) 5 SCC 424
52) (1910) ILR 37 Cal 412
53) AIR 1956 SC 404 = (1956 SCR 199
54) (2018) 7 SCC 260)
55) AIR 1936 All 833
56) (1960) 22 E.L.R. 261
57) 1993 Cri.L.J.3029 = 1994(1) HLR 40 Mad.
58) (1982) 3 SCC 456
59) (1992) 3 SCC 30
60) AIR 1948 Calcutta 58
61) AIR 1959 Allahabad 598
62) AIR 1949 Cal 235
63) (1975) 4 SCC 769
64) AIR 1965 Kerala 73
65) 1936 AIR PC 169
66) (1936) 3 AllER 36
67) AIR 1960 Madras 218
68) (1936) 41 C.W.N. 65
69) (1997) 9 SCC 338 = 1997 SCC (Cri) 612
70) AIR 1974 SC 859
71) (1774) 1 Cowp 63 at P. 65
72) (1989) 66 cc 410 (Delhi)
THE HONBLE SRI JUSTICE RAMESH RANGANATHAN,
THE HONBLE SRI JUSTICE A. RAJASHEKER REDDY,
AND
THE HONBLE SRI JUSTICE M. SATYANARAYANA MURTHY
Company Application No.814 of 2001,
Company Application No.808 of 2002
AND
Company Application No.1537 of 2004
IN
Company Petition No.144 of 1997
COMMON ORDER:(per Honble Sri Justice Ramesh Ranganathan) The question, referred for our opinion, is whether the onus lies on the Official Liquidator to prove that the person, against whom prosecution is launched under Section 454(5A) of the Companies Act, 1956 (for short, the Act), had no reasonable excuse for not complying with the requirement of Section 454 of the Act, for him to be prosecuted and punished under Section 454(5) of the Act (or) whether it would suffice if the prosecution is able to show that there has been a default on the part of the accused, in complying with the requirement of Section 454, to attract the penal consequences under Section 454(5) of the Act, and it is then for the accused to show reasonable excuse, for such default, for him to be exonerated of the offence.
While the former view weighed with a Division Bench of this Court in Indla Satya Raju v. Sramika Agro Farm (P) Ltd. (In liquidation) , and a Full Bench of the Delhi High Court in Official Liquidator of Security and Finance P. Ltd. v. B.K. Bedi , a Learned Single Judge of this Court (Justice T. Ch. Surya Rao) was of the considered view that, on a plain reading of Section 454(5) of the Act, reasonable excuse should be shown by the accused, and not the prosecution. By his order dated 25.01.2006, the Learned Judge directed that the matter be placed before the Chief Justice for appropriate orders, as this issue was required to be examined afresh by the appropriate Bench to be constituted for that purpose. On the directions of the then Chief Justice, C.A.No.814 of 2001 was listed before a Division Bench which, in its order dated 04.04.2006, was of the prima-facie opinion that the burden, to prove absence of reasonable excuse, was on the persons who were liable to produce the Statement of Affairs in terms of Section 454 of the Act; and the official liquidator could not be called upon to prove the negative. The Division Bench expressed its agreement, with the opinion of the Learned Single Judge that the declaration of law by the earlier Division Bench, in Indla Satya Raju1, required reconsideration. As they were inclined to take a view different from that expressed by the earlier Division Bench in India Satya Raju1, the matter was referred for the consideration of a Larger Bench and, accordingly, the question of law, noted hereinabove, has been referred to us for our opinion.
Before examining the rival submissions urged by Sri M.Anil Kumar, Learned Counsel appearing on behalf of the Official Liquidator, and Sri P.Vikram, Learned Counsel appearing for the respondent-accused, it is useful to take note of the opinion of the earlier Division Bench of this Court on this question. In Indla Satya Raju1, the Division bench held that if the person, against whom prosecution can be launched under Section 454(5-A), has reasonable excuse for not complying with the requirements of Section 454, such a person cannot be prosecuted and punished under Sub-section (5) of Section 454 of the Act; the fact, whether the person has reasonable excuse for committing default in the matter of complying with any of the requirements of Section 454 of the Act, is a jurisdictional fact, the existence of which is a must to exercise power under Sub-section (5-A); in the context of Section 454, particularly having regard to the provisions of sub-section (5), the burden, to prove that the accused has no reasonable excuse, is on the prosecution, namely, the Official Liquidator; a person cannot be prosecuted and convicted under sub-section (5) merely for the reason that he committed default in complying with any of the 'requirements of Section 454; and, in addition to establishing the default, the prosecution is also required to establish that the person has committed default, in complying with any of the requirements of Section 454, without reasonable excuse.
Sri M. Anil Kumar, Learned Counsel appearing on behalf of the Official Liquidator, would submit that the complainant (Official Liquidator) cannot be expected to prove the negative; whether or not he had reasonable excuse, for his failure to submit the Statement of affairs, would be within the exclusive knowledge of the accused; Section 106 of the Indian Evidence Act would apply; the onus is, therefore, on the accused to show reasonable excuse, and not on the complainant to establish its absence; it would suffice for the Official Liquidator to show that the accused had failed to submit the Statement of affairs within the time limit specified in Section 454(3); it would then be for the accused to show that he had reasonable excuse in not submitting the Statement of affairs; any other construction of Section 454(5) would defeat the very purpose for which Section 454(1) was enacted; if the onus is placed on the Official Liquidator to prove the negative, no accused can be prosecuted; and in the absence of a Statement of affairs being filed, by the Officers and Directors of the Company, the entire process of winding up would come to a grinding halt.
On the other hand Sri P. Vikram, Learned Counsel for the accused, would submit that a conjoint reading of Section 454(5) with Section 454(5-A) of the Companies Act, 1956 would show that if the complaint made to the Court establishes prima facie that, without any reasonable excuse, the accused has committed default in complying with the provisions of Section 454, the Court may take cognizance of the alleged offence based on such a complaint, and issue summons to the accused under the Cr.P.C; the burden lies on the prosecution to prove that the allegations in the complaint, and the evidence adduced in support thereof, establish commission of the offence, and make out a case against the accused; since the Statute envisages the Court to conduct proceedings under Section 454, in accordance with the procedure laid down in the Cr.P.C for the trial of summons cases by magistrates, the Court may take cognizance as envisaged in Section190 Cr.P.C, whereby the Court applies its judicial mind to the facts stated in the complaint to discern whether the alleged offence was committed; the question whether a person has reasonable excuse for committing default, in complying with the requirements of Section 454 of the Act, assumes the characteristics of a jurisdictional fact, the existence of which is a pre-requisite for exercise of power under Section 454(5A); even in cases where a reverse burden is placed on the accused, the onus can be defined as one that shifts the burden of proof upon the accused after the prosecution proves the existence of foundational fact that leads to a shift in the burden; the initial burden is on the prosecution/official liquidator to show/establish the following facts in its complaint, supported with documents, i.e., (a) the accused is liable to file the statement of affairs, and there is a default in filing the said statement within 21days; (b) no extension of time has been sought by the accused; (c) the official liquidator has issued notice to the said accused; and (d) the accused is in possession of the books of accounts, and other documents, which would enable them to file the statement of affairs and, inspite of the same, they did not file it; on the prosecution establishing these factual aspects, they can then be said to have made out a case enabling the Court to exercise jurisdiction under Section 454(5A); and only thereafter would the burden of proof shift to the accused.
(I) SECTIONS 454 AND 455 OF THE ACT AND THE RULES RELATING TO THE IMPORTANCE OF THE STATEMENT OF AFFAIRS:
As the penalty, under Section 454(5) of the Act, is the default in complying with the requirements of Section 454 of the Act without reasonable excuse, it is useful, at the very outset, to take note of what Section 454 of the Companies Act, 1956, prescribes regarding the Statement of affairs to be made to the Official Liquidator. Under sub-section (1) thereof, where a winding up order is made, unless the Court in its discretion otherwise orders, there shall be made out and submitted to the Official Liquidator a Statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, namely :- (a) the assets of the company, stating separately the cash balance in hand and at the bank, if any, and the negotiable securities, if any, held by the company; (b) its debts and liabilities;
(c) the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts ; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given; (d) the debts due to the company and the names, residences and occupations of the persons from whom they are due, and the amount likely to be realized on account thereof;
and (e) such further or other information as may be prescribed, or as the Official Liquidator may require.
Section 455 of the Companies Act related to the report by Official Liquidator and, under sub-section (1) thereof, in a case where a winding up order is made, the Official Liquidator shall, as soon as practicable after receipt of the Statement to be submitted under Section 454, and not later than six months from the date of the order or such extended period as may be allowed by the Court, or in a case where the Court orders that no Statement need be submitted, as soon as practicable after the date of the order, submit a preliminary report to the Court (a) as to the amount of capital issued, subscribed, and paid up, and the estimated amount of assets and liabilities, giving separately, under the heading of assets, particulars of (i) cash and negotiable securities ; (ii) debts due from contributories; (iii) debts due to the company and securities, if any available in respect thereof ; (iv) movable and immovable properties belonging to the company ; and (v) unpaid calls ; (b) if the company has failed, as to the causes of the failure; and (c) whether, in his opinion, further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof. Rule 133 of the Companies (Court) Rules, 1959, required an application, to dispense with the requirements of Section 454, to be supported by a report of the Official Liquidator showing special circumstances which, in his opinion, rendered such a course desirable; and where an order is made, dispensing with the requirements, the Court may give such consequential or other directions as it may think fit.
Under Section 455(2) the Official Liquidator may also, if he thinks fit, make a further report stating the manner in which the company was promoted or formed and whether, in his opinion, any fraud has been committed by any person in its promotion or formation, or by any officer of the company in relation to the company since the formation thereof, and any other matters which, in his opinion, it is desirable to bring to the notice of the Court. Section 455(3) stipulated that if the Official Liquidator states, in any such further report, that in his opinion a fraud had been committed as aforesaid, the Court shall have the further powers provided in Section 478.
The object of Section 454 requiring the person, concerned with the company at the relevant time, to submit the Statement of Affairs is to facilitate the winding up proceedings by ensuring that full information is made available to the Official Liquidator in as short a time as possible. The person best suited to furnish information, regarding the assets, debts and liabilities of the company, would be those in control of the management of the affairs of the company at the relevant time. Parliament, advisedly, thought it fit to make it the statutory duty of such persons to submit the Statement of Affairs rather than leave it to the Official Liquidator to ferret out this information, on his own, with all associated limitations. (B.K. Bedi2). These provisions were an essential part of the proceedings in the winding up, without which the whole machinery of winding up would be imperfect. (B.K. Bedi2; New Par Consols Ltd., In Re ).
Section 454(2) required the Statement of affairs to be submitted and verified by one or more of the persons who were, at the relevant date, the directors and by the person who was, at that date, the manager, secretary or other chief officer of the company, or by such of the persons, i.e., persons--(a) who are or have been officers of the company ; (b) who have taken part in the formation of the company at any time within one year before the relevant date ;(c) who are in the employment of the company, or have been in the employment of the company within the said year, and are, in the opinion of the Official Liquidator, capable of giving the information required ; (d) who are or have been, within the said year, officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates; as the Official Liquidator, subject to the direction of the Court, may require to submit and verify the statement. Section 454(8) provided that, in Section 454, the expression "the relevant date" meant the date of the winding up order.
Rule 124 of the Companies (Court) Rules, 1959 related to the notice to submit the Statement and, thereunder, a notice by the Official Liquidator, requiring any of the persons mentioned in Section 454(2) to submit and verify a Statement of affairs of the company, shall be in Form No. 55 and shall be served by the Official Liquidator, as soon as may be, after the order for winding- up is made. The notice to submit the Statement of affairs and appear before the Official Liquidator, as required under Rule 124, is in Form No.55, and thereby the person, who is required to submit the Statement of affairs, is informed that a winding-up order was passed on the date, month and year specified in the notice; and pursuant to the provisions of the Companies Act, and the Rules made thereunder, the Official Liquidator was calling upon the said person to submit, within 21 days from the date of the said winding-up order (or where time has been extended by the Court or the Official Liquidator, the extended time), the Statement of affairs, of the said company, in duplicate. By the said notice, the person is also intimated that the forms and instructions, for the preparation of the said Statement of affairs, can be obtained from the Official Liquidator at his office. The notice is also required to contain the date on which the notice is issued.
Rule 125 related to the application by the Official Liquidator under Section 454(2) and, thereunder, the Official Liquidator may apply, by summons, to the Court for an order directing any person who, in his opinion, was liable to furnish a Statement of affairs under Section 454, to prepare and submit such a statement or concur in making the same. Notice of the application was required to be served on the person against whom the order was sought. Where the Court makes the order, such order shall be in Form No. 56 with such variations as may be necessary. The order required to be passed by the Court, on an application made by the Official Liquidator under Section 454(2), and in terms of Rule 125, was in Form No.56. By the said order, the Court directed the person concerned, within the time specified in the order, to submit a Statement of affairs pursuant to the provisions of Section 454 of the Companies Act and the Companies (Court) Rules, 1959; and that the said person should attend on the Official Liquidator at his office, at such time as the Official Liquidator may appoint and give him all the information he may require as to the affairs of the company.
Section 454(2) cast a duty, to submit and verify the Statement of affairs, on two categories of persons. The first category consisted of only those persons who were the officers of the Company, as specified in the said sub-section, at "the relevant date" which was defined, in sub-section (8) of Section 454, as the date of the winding-up order. The officers specified were the Directors, the Manager, the Secretary or other Chief Officer of the Company. Section 454(1) & (2) obligated such persons to make and submit the Statement of affairs within 21 days of the winding up order.
The second category of persons were those specified in clauses (a), (b), (c) and (d) of Section 454(2), whom the Official Liquidator, subject to the directions of the Court, could require to submit and verify the Statement. In the case of persons, falling under the first category, the duty to submit and verify a statement did not depend upon any direction of the Court. In the case of others, falling under the second category, the duty to submit and verify the Statement arose only when there was a direction of the Court. (Official Liquidator v. K. Krishna Kumar ). The Official Liquidator could call upon such persons to make a Statement of affairs only after obtaining the order of the Court, or if the Court so directed. In the absence of being called upon to do so, as stipulated hereinabove, the persons mentioned in clauses (a) to (d) of Section 454(2) were not obligated to submit a Statement of affairs, and could not be prosecuted for not having submitted the Statement of affairs except where they failed to do so even after the Court had so directed.
On a plain reading, Clause (a) of Section 454(2) may appear to give rise to a conflict as it says "who are or have been officers of the company", and could possibly be construed as including not merely those who have been the officers of the Company, but also those who are the officers of the Company, that is to say, the 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, and on whom a duty is already imposed to submit and verify a Statement. (K. Krishna Kumar4). Since the persons, referred to in the first limb of Section 454(2) are the Director, the Manager, the Secretary and the Chief Officer of the company holding office on the date of the winding up order, the persons referred to in Section 454(2)(a) would only be those officers holding office on the date of the winding up order, other than the Director, the Manager, the Secretary and the Chief Officer of the Company, as the Legislature must not be understood as having indulged in needless repetition of referring to the very same persons in both the first and second limb of Section 454(2).
Such a construction would also result in absurdity for the very same officers, whom Section 454(1) of the Act obligates to file the Statement of affairs within 21 days of the winding up order, can claim protection under clause (a) of Section 454(2) and contend that their obligation to file a Statement of affairs would arise only on their being called upon to do so by the Official Liquidator on the directions of the Court. Further, the specific inclusion of such persons in the first limb, would necessarily exclude them from the ambit of the later limb of Section 454(2), as those in the first limb were required to submit the Statement of affairs within 21 days of the winding up order, while those in the second limb were required to file the statement only on their being called upon to do so by the Official Liquidator, that too on the directions of the Court.
Rule 126 of the Companies Court Rules related to the preparation of the Statement of affairs and, thereunder, any person who, under Section 454, was required to submit and verify a statement as to the affairs of the company shall be furnished by the Official Liquidator with the necessary forms, and shall be given such instructions and afforded such reasonable facilities for preparing the Statement as the Official Liquidator may, in his discretion, consider necessary. Rule 127 related to the Form of the statement and, thereunder, the Statement as to the affairs of the company, to be submitted under Section 454, shall be in Form No. 57, and shall be made out in duplicate, one copy of which shall be verified by affidavit. An affidavit of concurrence in the Statement of affairs shall be in Form No. 58. The verified Statement and the affidavit of concurrence, if any, shall be submitted to the Official Liquidator within the time prescribed by the Section, or within such extended time, not exceeding three months from the "relevant date" as defined in the Section, as the Official Liquidator or the Court may, for special reasons, appoint. The Official Liquidator shall cause the verified statement of affairs and the affidavit of concurrence, if any, to be filed in the Court and shall retain the duplicate thereof for his records.
Section 454(3) required the statement to be submitted within twenty-one days from the relevant date, or within such extended time not exceeding three months from that date as the Official Liquidator or the Court may, for special reasons, appoint. Rule 128 of the Companies Court Rules related to extension of time for submitting the Statement and, under sub-rule (1) thereof, where any person, required to submit a Statement of affairs under Section 454, required an extension of time for submitting the same, he should apply, in the first instance, to the Official Liquidator who may, if he thinks fit, give a written certificate extending the time, which certificate shall be filed with the proceedings. The certificate shall be in Form No. 59. Rule 128(2) stipulated that, where the Official Liquidator refused to grant an extension of time for submitting the statement of affairs, the person required to submit the statement may apply to the Judge in Chambers for extension of time on notice to the Official Liquidator.
Section 454(3) proceeded on the basis that the obligation to file the Statement of affairs arose on the relevant date, and was placed on those persons, mentioned in the earlier part of Section 454(2), who were bound to submit the Statement even without the directions of the Court. The time-limit specified in sub-section (3) therefore governed only those whose obligation, to submit the Statement, sprang into existence from the relevant date, and did not depend upon any directions of the Court. It does not apply to the second category who were required to file the Statement of affairs, only on the Official Liquidator requiring them to do so, pursuant to the directions of the Court. (K. Krishna Kumar4; P.M.A. Nambudiripad v. Official Liquidator ). A combined reading of the Act and the Rules shows that, ordinarily within 21 days or subject to such extended time as may be granted by the Official Liquidator or the Court not exceeding three months, a Statement of affairs of the company, in the prescribed form, should be filed by the persons concerned. A person requiring extension should apply, in the first instance, to the Official Liquidator who may grant him extension; and, if he refused to do so, he may apply to the Judge in Chambers. (B.K. Bedi2).
Section 454(4) stipulated that any person making, or concurring in making, the Statement, and the affidavit required by Section 454, to be allowed, and to be paid by the Official Liquidator, from out of the assets of the company, such costs and expenses incurred in and about the preparation and making of the statement and affidavit as the Official Liquidator may consider reasonable, subject to an appeal to the Court. Rule 129 related to the expenses of preparing the statement and, under sub-rule (1) thereof, any person, required to make or concur in making any Statement of affairs of the company, shall submit to the Official Liquidator for his sanction, a Statement, of the estimated costs and expenses of the preparation and making of the statement; and shall, after the submission of the Statement of affairs, submit his bill of actual expenses. Rule 129 (2) provided that, except by order of the Court, no person should be paid out of the assets of the company any costs or expenses which have not been sanctioned by the Official Liquidator, nor shall such costs and expenses be paid until the statement of affairs verified by affidavit has been submitted to the Official Liquidator. Rule 129(3) enabled any person who had made or concurred in making the said statement and affidavit, and whose bill or costs and expenses had not been allowed in full by the Official Liquidator, within 14 days of the notice of the order of the Official Liquidator disallowing any part of his bill, to apply, by summons, to the Judge in chambers, upon notice to the Official Liquidator, for sanction of the amount disallowed or any part thereof and the Judge may pass such order thereon as may seem just.
The obligation of persons, referred to in the first limb of Section 454(2) of the Companies Act, 1956, was to make and submit, to the Official Liquidator, a Statement of affairs of the company in the prescribed form (Form No.55), verified by affidavit, and containing the particulars stipulated in clauses (a) to (e) of Section 454(1) of the Act. This statement was required to be submitted within 21 days of the date of the winding up order (Section 454(3) and (8)). The person making the Statement of affairs, in terms of Section 454(1), was entitled to be paid, by the Official Liquidator, the costs and expenses incurred in its preparation and making (Section 454(4).
(II) SECTION 454(5) : ITS SCOPE Section 454(5) is the penal provision and, thereunder, if any person, without reasonable excuse, makes default in complying with any of the requirements of Section 454, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one thousand rupees for every day during which the default continues, or with both. While the first limb of Section 454(5) is the offence, the second limb is the punishment prescribed for the said offence. The offence under Section 454(5) is if any person, without reasonable excuse, makes default in complying with any of the requirements of this Section (i.e. Section 454). This would mean failure to file a Statement of affairs, as required under Section 454(1), within the time limit specified in Section 454(3) without reasonable excuse. The legislature has, in its wisdom, chosen not to make a mere default punishable. It has, advisedly, chosen to specify and qualify that the making of default should be without reasonable excuse. Considering the necessity of compelling officers of the company to submit the statement of affairs of the company, Parliament could have made their liability absolute. As Parliament has not so provided, it would be beyond the province of the Court to supply that necessity. (B.K. Bedi2).
(a) POWER TO PRESCRIBE OFFENCES, AND THE PUNISHMENT THEREFOR, IS CONFERRED ONLY ON THE COMPETENT LEGISLATURE AND NOT ON COURTS:
Section 4(c) of the Code of Criminal Procedures defines offence to mean any act or omission made punishable by any law for the time being in force. The word offence is defined in Section 3(37) of the General Clauses Act to mean an act or omission punishable by any law by way of fine or imprisonment. Article 20 of the Constitution, guaranteeing protection in respect of conviction of offence, provides that no person shall be convicted of any offence except for violation of the law in force at the time of commission of the act charged as an offence. Law under Article 13 clause (3) of the Constitution means the law made by the legislature, (Surajmani Stella Kujur (Dr) v. Durga Charan Hansdah ), and not by Courts. There exists no power in the Courts to create new criminal offences. (R. v. Jones ; Knuller (Publishing, Printing and Promotions) Ltd v Director of Public Prosecutions ). No person can be convicted of any offence except for violation of the law in force at the time of commission of the act charged. Consequently the offence under Section 454(5) would be what Parliament has, on a plain and literal meaning being given to the said provision, has prescribed. Giving it any other meaning would result in the offence being prescribed by the Court which is impermissible. (B.K. Bedi2). The ingredients of an offence, under Section 454(5), are twofold i.e., the person (a) without reasonable excuse, (b) makes default in complying with any of the requirements of the said Section. (B.K. Bedi2).
(b) PENAL PROVISIONS SHOULD BE STRICTLY CONSTRUED:
Section 454(5) of the Companies Act, a penal provision, must receive strict construction (State of Kerala v. Unni ; Indian Handicrafts Emporium v. Union of India ; Balram Kumawat v. Union of India ), and the language employed therein shall be so construed that no cases shall be held to fall within it which do not fall within a reasonable interpretation of the said provision. (Dattatraya Malhar Bidkar v. Emperor ). All penal statutes should be construed strictly, that is to say, the Court must see that the thing charged as an offence is within the plain meaning of the words used, and must not strain the words on any notion that there has been a slip or a casus omissus or even that the thing is so clearly within the mischief that it must have been included, if thought of. (Balram Kumawat11; G.P. Singh : Principles of Statutory Interpretation).
Hardship or inconvenience cannot alter the meaning of the language employed by the legislature if such meaning is clear on the face of the penal statute. (B. Premanand v. Mohan Koikal ; CIT (Ag) v. Keshab Chandra Mandal ). While interpreting a penal statute, considerations of inconvenience and hardship should be avoided. When the language is clear and explicit, and the words used are plain and unambiguous, the Court is bound to construe them in their ordinary sense. (Mohan Kumar Singhania v. Union of India ; Balram Kumawat11). The Court will not hold that a penalty has been incurred, unless the language of the provision, which is said to impose it, is so clear that the case must necessarily be within it. (London & North Eastern Ry. Co. v. Berriman ; Tuck & Sons v. Priester ).
The language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect or an omission in the words used by the legislature, the Court cannot correct or make up the deficiency, (B. Premanand13; Prakash Nath Khanna v. CIT ; Delhi Financial Corpn. v. Rajiv Anand ). To adhere as closely as possible to the literal meaning of the words used, is a cardinal rule, and departure from it would launch the Court into a sea of difficulty not easy to fathom. (B. Premanand13; Gundry v. Pinniger ).
(c) THE OFFENCE UNDER SECTION 454(5) IS NOT MERE DEFAULT, BUT DEFAULT WITHOUT REASONABLE EXCUSE:
The offence, under Section 454(5), is not the mere default of a person in complying with the requirements of Section 454, but is only if such a default is without reasonable excuse. The word excuse is restricted by the word reasonable. Absence of any excuse, or one which is not reasonable, in making default in complying with the provisions of Section 454, is an offence. It is only if the person, obligated to make and submit the Statement of affairs to the Official Liquidator under Section 454(1) within the time stipulated in Section 454(3), defaults in complying with this requirement without any excuse, or an excuse which the Court considers unreasonable, can he then be said to have committed the offence under Section 454(5) of the Act.
The words default being made, qualified by the words without reasonable excuse, is the offence. (B.K. Bedi2). If Parliament had intended to make default, in complying with the requirement of Section 454, an offence, it was wholly unnecessary for it to use the words without reasonable excuse in Section 454(5). Parliament has, in its wisdom, chosen to make default in complying with the requirement of Section 454 an offence, only if it is without reasonable excuse, and not where the person has a reasonable excuse in committing default in making and submitting a Statement of affairs within time.
(d) NO PROVISION SHOULD BE SO CONSTRUED AS TO RENDER A PART THEREOF REDUNDANT:
Construing the mere making of a default, in complying with any of the requirements of Section 454, an offence as it would then render the words "without reasonable excuse" redundant. (B.K. Bedi1). It is not a sound principle of construction to brush aside words in a statute as being inapposite surplussage, if they can have a proper application in circumstances conceivable within the contemplation of the Statute. (Gurudevdatta v. State ; Justice Chandrashekaraiah v. Janejere ; Manohar Lal v. Vinesh Anand ; Aswini Kumar Ghose v. Arabhinda Bose ). Any interpretation which leads to addition/deletion of words in a statute or as rendering any statutory provision redundant or a construction that reduces one of the provisions to a dead letter should be avoided. When the legislative intent is found specific mention and expression in the provisions of the Act itself, the same cannot be whittled down or curtailed and rendered nugatory. (Bharathidasan University v. All India Council for Technical Education ; Anwar Hasan Khan v. Mohd. Shafi ; Banarsi Debi v. ITO ; Attorney-General v. Carlton Bank ).
A construction which requires for its support addition or substitution of words or which results in rejection of words as meaningless should also be avoided. A statute, enacting an offence or imposing a penalty, is strictly construed. The fact that an enactment is a penal provision is in itself a reason for hesitating before ascribing to phrases used in it a meaning broader than that they would ordinarily bear. (Justice G.P. Singh: Principles of Statutory Interpretation, pp. 58 and 751, 9th Edn.; Sakshi v. Union of India ). The maxim verbis legis non est recedendum which means 'from the words of law, there must be no departure', should be kept in mind. The Court cannot proceed on the premise that the legislature, enacting the Statute, has made a mistake. Where the language of the Statute is plain and unambiguous, the Court cannot go behind the language of the Statute to add or subtract a word or sentence. The Court should proceed on the footing that the legislature intended what it has said, and even if there is some defect in the phraseology etc., it is for Parliament, and not for the Court to remedy that defect. (Hardeep Singh v. State of Punjab ; Rohitash Kumar v. Om Prakash Sharma ; Mala Mukherjee v. Union of India ).
(e) JUDICIAL LEGISLATION IS IMPERMISSIBLE:
Such a construction of Section 454(5) would also result in prescription of an offence by the Court contrary to what the Legislature (Parliament) has stipulated. As the requirement of absence of reasonable excuse is made an ingredient of the offence, it is not permissible for the Court to recast the statute. (B.K. Bedi2). Courts should not re-write, recast or reframe legislation as it has no power to legislate. (Rohitash Kumar31; Hardeep Singh30).
Judicial legislation is an oxymoron. The function of the court is only to expound the law, (B. Premanand13; District Mining Officer v. TISCO ), and not to reframe the legislation as it has no power to do so. (Chartered Accountants of India v. Price Waterhouse ; State of Kerala v. Mathai Verghese ; Union of India v. Deoki Nandan Aggarwal ). Ordinarily, it is not proper for the court to depart from the literal rule as that would really amount to amending the law in the garb of interpretation. (B. Premanand13; J.P. Bansal v. State of Rajasthan ; State of Jharkhand v. Govind Singh ). Where penalties for infringement are imposed it is not legitimate to stretch the language of a provision, however, beneficient its intention, beyond the fair and ordinary meaning of its language. (London and North Eastern Railway Co.16; Tolaram Relumal v. State of Bombay ). Where the words are clear, there is no obscurity, there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the court to innovate or take upon itself the task of amending or altering the statutory provisions. (Price Waterhouse34).
In a democracy, it is the task of the elected representatives, of the people, to legislate. (B. Premanand13; G.P. Singhs Principles of Statutory Interpretation, 9th Edn., pp. 45-49). The function, in construing a Statute, is to ascertain the meaning of words used by the legislature. To go beyond it is to usurp a power which our democracy has lodged in its elected legislature. (Of Law & Men : Papers and Addresses of Felix Frankfurter; B. Premanand13). It endangers continued public confidence in the political impartiality of the judiciary, which is essential to the continuance of the rule of law, if Judges, under the guise of interpretation, provide their own preferred amendments to statutes which, experience of their operation, has shown to have had consequences that members of the court, before whom the matter comes, consider to be injurious to public interest. (Duport Steels Ltd. v. Sirs ; Price Waterhouse34).
Judges should not, in the guise of interpretation of statutes, play the role of a law-maker as there is a line, though thin, which separates adjudication from legislation. That line should not be crossed. This can be vouchsafed by an alert recognition of the necessity not to cross it and instinctive, as well as trained, reluctance to do so. (Price Waterhouse34; B. Premanand13; Frankfurter, Some Reflections on the Reading of Statutes in Essays on Jurisprudence, Columbia Law Review, p. 51; Justice G.P. Singh: Principles of Statutory Interpretation 6th Edn., 1996, p. 15). Ironing out the creases is possible, but not rewriting the language to serve a notion of public policy held by Judges. (Unni9).
A Judge must not rewrite a statute, neither to enlarge nor to contract it. Whatever temptations the statesmanship of policy- making might wisely suggest, construction must eschew interpolation and evisceration. A Judge must not read in by way of creation. He must not read out except to avoid patent nonsense or internal contradiction. (Of Law & Men : Papers and Addresses of Felix Frankfurter; B. Premanand13). As the function of the Court is only to interpret the provisions of the Act, and the power of law making is conferred only on the competent legislature (i.e Parliament), it would be wholly inappropriate for the Court to read Section 454(5) in a manner contrary to its plain and literal meaning.
(f) WHERE TWO VIEWS ARE POSSIBLE, A CONSTRUCTION, WHICH EXEMPTS A SUBJECT FROM PENALTY, SHOULD BE ADOPTED:
It is a well-settled rule of construction of penal statutes that if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. (Tolaram Relumal39). If mere default in making the Statement of affairs under Section 454(1), within the time limit specified in Section 454(3), is made an offence, then the person charged of the offence under Section 454(5) would be guilty of the offence even if he had a reasonable excuse for committing the default. If on the other hand it is only default, without reasonable excuse, which is an offence, the accused can only be punished if the prosecution establishes that he has committed default without reasonable excuse. Even if both constructions are held to be a possible interpretation of the provision, the Court should lean in favour of the latter as it would exempt the accused from penalty if the prosecution is unable to prove absence of reasonable excuse in his making a default.
III. IS THE INITIAL ONUS OF SHOWING ABSENCE OF REASONABLE EXCUSE ON THE PROSECUTION OR ON THE ACCUSED?
It is not even contended before us by Sri M.Anil Kumar, Learned Counsel for the Official Liquidator, that mere default in making the Statement of affairs is an offence. While fairly stating that the offence, under Section 454(5), can be construed as default without reasonable excuse, Learned Counsel would submit that the question is really on whom the onus lies to prove absence of reasonable excuse, and whether it is on the prosecution or the accused.
On the other hand Sri P. Vikram, Learned Counsel for the accused, would submit that, as the words if any person without reasonable cause, fails, are in the negative, the initial burden is on the complainant to show absence of reasonable cause; the burden, in the present case, is on the official liquidator to show that the accused has failed to do certain things, for him to be punished; even in cases of reverse burden of proof, the prosecution has to prove certain preliminary facts with respect to offences; only then would the burden shift to the accused; a reverse burden can be understood as one that shifts the burden of proof upon the accused after the prosecution proves the existence of a foundational fact that leads to a shift in the burden; Section 106 of the Indian Evidence Act, 1872 is attracted once the prosecution discharges its initial burden, and makes out a prima facie case against the accused; as Section 106 is an exception, its application does not extend to removing the initial legal burden from the prosecution; in order to prove commission of the offence under Section 454(5) of the Act, the prosecution should prove that the accused had failed to file the Statement of affairs without reasonable excuse; and it is only after the prosecution (official liquidator) establishes these ingredients would the Court take cognizance of the offence.
(a) SECTION 454(5-A) OF THE ACT: ITS SCOPE:
In examining this question, the ambit and scope of Section 454(5-A) of the Companies Act assumes significance. Section 454(5A) confers power on the Court, by which the winding up order is made, to take cognizance of an offence under sub-section (5) upon receipt of a complaint of facts constituting such an offence (i..e, the offence under Section 454(5)), and to try the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure 1898 (5 of 1898) for the trial of summons cases by magistrates. Section 454(5-A) of the Act requires the Court to take cognizance of an offence under Section 454(5) upon receipt of a complaint of facts constituting such an offence. (B.K. Bedi2).
It is only if the complaint, made by the Official Liquidator, contains facts which disclose the commission of the offence under Section 454(5), can the High Court take cognizance of such an offence under Section 454(5A), and then proceed to try the offence in accordance with the procedure prescribed in the Criminal Procedure Code. Cognizance is an act of the Court, and has not been defined in the Criminal Procedure Code. (Sarah Mathew v. Institute of Cardio Vascular Diseases ). The word cognizance merely means-become aware of and, when used with reference to a Court or a Judge, to take notice of judicially. (Gurmeet Pal Singh v. State of Punjab ; Gopal Mardari v. Emperor ; R.R. Chari v. State of Uttar Pradesh ). It indicates the point when a Court or a Judge takes judicial notice of an offence, with a view to initiate proceedings in respect of such an offence said to have been committed by someone (S.K. Sinha, Chief Enforcement Officer v. Videocon International Ltd. ; R.R. Chari44; Gopal Dass v. State of Assam ; Jamuna Singh v. Bhadai Shah ; Jagdish Ram v. State of Rajasthan ; Sarah Mathew41), applying its mind to the contents of the complaint (General Officer Commanding v. CBI ), and forming an opinion whether it, prima facie, makes out a case for all or any of the offences alleged. (Shashi Kumar v. The State of Karnataka ).
It is the application of the judicial mind, to the averments in the complaint, that constitutes cognizance. (Bhushan Kumar v. State (NCT of Delhi) ). Taking cognizance does not involve any formal action or action of any kind, but occurs as soon as the Court applies its mind to the suspected commission of an offence. (Emperor v. Sourindra Mohan Chuekorbutty ; Gurmeet Pal Singh42). Taking of cognizance is the sine qua non or condition precedent for holding a valid trial. Cognizance is taken of an offence, and not of an offender. (Videocon International Ltd.45; Sarah Mathew41). At the stage of taking cognizance, the Judge has only to decide whether sufficient ground exists or not for further proceeding in the matter. The Court is empowered to take cognizance if the material on record makes out a case for the said purpose. (Jagdish Ram48).
In taking cognizance under Section 454(5), the Court must examine whether or not the various ingredients of the offence, under Section 454(5) of the Act, are made out from the complaint of facts submitted by the Official Liquidator. The Court cannot take cognizance unless it comes to the prima facie conclusion, on the material placed before it, that a person has made the default, in complying with the requirements of Section 454, without reasonable excuse. (B.K. Bedi2). The complaint of facts, based on which the High Court is required to take cognizance under Section 454(5A), should disclose that the person required, by Section 454(2), to submit the Statement of affairs, within twenty one days of the winding up order, has failed to do so without reasonable excuse.
(b) WOULD SECTION 106 OF THE INDIAN EVIDENCE ACT REQUIRE THE INITIAL ONUS TO BE PLACED ON THE ACCUSED?
Reliance placed by Sri M.Anil Kumar, Learned Counsel appearing on behalf of the Official Liquidator, on Section 106 of the Indian Evidence Act to contend that the onus to prove reasonable excuse is on the accused, and not on the prosecution, is misplaced. Section 101 of the Evidence Act lays down that, whoever desires any court to give judgment as to any legal right or liabilitiy dependent on the existence of facts which he asserts, must prove that those facts exists. (B.K. Bedi2; Shambu Nath Mehra v. The State of Ajmar ). Section 101 lays down the general rule that, in a criminal case, the burden of proof is on the prosecution. (Emperor v. Santa Singh ); Ram Bharosey v. Emperor ). Onus of proof has two distinct meanings viz. (i) the burden of proof as a matter of law and pleadings, and (ii) the burden of proof as a matter of adducing evidence. Section 101 deals with the former and Section 102 with the latter. The first remains constant, and the second shifts. (B.K. Bedi2; T. K. Gangi Reddy v. M. C. Anjaneya Reddy ).
Section 106 of the Evidence Act, which provides that, when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him, cannot be invoked to make up for the inability of the prosecution to produce evidence of circumstances pointing to the guilt of the accused. (Santa Singh54; Ram Bharosey55). On the contrary, it is designed to meet certain exceptional cases in which it would be impossible, or at any rate disproportionately difficult, for the prosecution to establish facts which are 'especially' within the knowledge of the accused and which he could prove without difficulty or inconvenience. The word "especially" means facts that are pre-eminently or exceptionally within the knowledge of the accused. (Shambho Nath Mehra53; Rajammal v. State by DSP, CBCID, Madras ; B.K. Bedi2; State of Karnataka v. Khaja Hussain ).
Section 106, which contemplates facts within the knowledge of the accused and of nobody else, (State of A.P. v. Y. Basavadevudu ), must be applied with great care and caution in criminal cases, (B.N. Chatterjee v. Dinesh Candra Guha ), and should be confined to those cases where a fact is especially within the knowledge of the accused, (Shridhar Misra v. Jaichandra Vidyalankar ), and of no one else. It is not attracted where the fact in question, having regard to its nature, is such as to be capable of being known not only by the accused but also by others. (Lachman Sing v. The King ; Ram Bharosey55). But when knowledge of such facts is equally available to the prosecution, if it chooses to exercise due diligence, they cannot be said to be especially within the knowledge of the accused, and Section 106 would not apply. (B.K. Bedi2; Razik Ram v. Jaswant Singh Chouhan ). Section 106 cannot be used to undermine the well established rule of law that, save in a very exceptional class of cases, the burden is on the prosecution and never shifts. (Shambhu Nath Mehra53).
Section 106 of the Evidence Act can neither be used to shift the onus of proving the offence from the prosecution to the accused, (Rajammal57), nor is it intended to relieve the prosecution of the initial burden to prove its case. (B.K. Bedi2). If Section 106 were to be interpreted otherwise, it would lead to very startling conclusions that, in a murder case, the burden lies on the accused to prove that he did not commit the murder because who could know better than he whether he did or did not. It is evident that that cannot be the intention. (Shambhu Nath Mehra53; O.V. Narayan Nambiar v. Executive Officer, C P. Board ; Attygalle v. The King ; and Seneviratne v. R. ). Even where there are facts specially within the knowledge of the accused, which could throw light upon his guilt or innocence, as the case may be, the accused is not bound to prove them. It is not as if Section 106 is automatically applicable to all criminal trials, for, if that had been the case, the Legislature would have so enacted. (In Re Naina Mohamed ; Seneviratne66).
If a fact, constituting or relevant to the ingredient of a charge, is pre-eminently within the knowledge of the accused, it may affect the quantum of its proof but does not relieve the complainant of his primary burden. The complainant must adduce, prima facie, proof even of such a fact. That is to say he must establish such other relevant facts and circumstances which, if unrebutted or left unexplained by the opposite party, would raise a presumption as to the existence of such a fact in issue. (Razik Ram63).
Where the accused throws no light at all upon facts which ought to be especially within his knowledge, and which could support any theory or hypothesis compatible with his innocence, the Court can also consider his failure to adduce any explanation. (In Re Naina Mohamed67). If the accused is not in a position to explain the only alternative theory to his guilt, the absence of explanation could be taken into account. (In Re Naina Mohamed67; Smith v. R. ). Section 106 of the Evidence Act refers to cases where the defence of the accused depends on his proving a certain fact, that is cases where his guilt is established, on the evidence produced by the prosecution, unless he is able to prove some other facts especially within his knowledge which would render the evidence for the prosecution nugatory. Section 106 cannot be used to strengthen the evidence for the prosecution. The prosecution must stand or fall on the evidence adduced by it and, until a prima facie case is established by such evidence, the onus does not shift on to the accused. (Santa Singh54; Ram Bharosey55).
The special or peculiar knowledge of the person proceeded against will not relieve the prosecution altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden, to discharge which very slight evidence may suffice. (Balram Prasad Agrawal v. State of Bihar ; Collector of Customs, Madras v. D. Bhoormull ; Shambhu Nath Mehra53). The prosecution would be deemed to have discharged its burden if it adduces only so much evidence, circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved. (D. Bhoormall70).
Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden. (Blatch v. Archer ;D. Bhoormull70; Balram Prasad Agrawal69). If a person fails to establish facts in his special knowledge, or explain those facts, an adverse inference of facts may arise against him which coupled with the presumptive evidence adduced by the prosecution would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. (Balram Prasad Agrawal69; D. Bhoormull70).
In this context, it is useful to note that, whenever the legislature intends to place the burden of proof on the accused it has done so clearly. For instance, Section 178A(1) of the Sea Customs Act, 1878 states that where any goods, to which the Section, applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be on the person from whose possession the goods were seized. (B.K. Bedi2). Unlike Section 178A(1) of the Sea Customs Act, 1878, Section 454(5)&(5-A) of the Companies Act place the initial onus on the Official Liquidator to show reasonable excuse, and require him to state such facts, in his complaint, which would, prima facie, disclose absence of reasonable excuse for the failure of the accused to submit the Statement of affairs within time.
To the extent the reasonable excuse is especially within the knowledge of the person (required to make the Statement of affairs) alone, the onus cannot be placed on the prosecution to prove absence of reasonable excuse which it is neither aware of nor can it be expected to be aware of. However, the complaint of facts should disclose absence of reasonable excuse to the limited extent the Official Liquidator, by exercising due diligence, can ascertain such facts. In effect, the complaint of facts should disclose reasons why the Official Liquidator believes that the person, required to make the Statement of affairs, had failed to do so, within the time stipulated in Section 454(3), without reasonable excuse. For it to take cognizance of the offence under Section 454(5-A), the Court must be satisfied that the complaint of facts, made by the Official Liquidator, discloses that the person concerned had failed to make a Statement of affairs without reasonable excuse.
(c) WHAT ARE THE FACTS WHICH THE OFFICIAL LIQUIDATOR SHOULD STATE IN HIS COMPLAINT, FOR THE COURT TO TAKE COGNIZANCE, OF THE OFFENCE, UNDER SECTION 454(5-A)?
Sri P. Vikram, Learned Counsel appearing on behalf of the accused, would submit that the Official Liquidator is empowered in law to secure the property of the company including its books and other documents required for preparation of the statement of affairs; and before initiating proceedings under Section 454(5) & (5-A), the official liquidator should exhaust all options available to him to secure the books of accounts, as the penal provisions u/s 454(5) has serious consequences on the persons mentioned therein. Learned Counsel would contend that the official liquidator may face four possible situations i.e., (a) where the books of accounts are available in the registered office of the company; (b) where the books of accounts are not available in the office of the company; (c) where the books of accounts are seized by other authorities such as Police, Income-tax Department, CBI etc., (d) where the books of accounts are destroyed in the office or are not in existence or any other circumstance; depending on the situations the official liquidator may have to plead necessary facts in the complaint under Section 454(5A); where the official liquidator is satisfied that the default, in filing the Statement of affairs, is without reasonable excuse, he may file an application bringing all facts, from the date of the winding up order, action taken by him to secure custody of the books/ assets until the filing or non-filing of the statement of affairs by such persons showing the default constituting an offence under Section 454(5); the facts, constituting the offence, may vary from case to case; however, the official liquidator should disclose all facts constituting the offence, the steps he has taken, and his opinion on the reasonableness of the excuse for the default under Section 454; a reading of Rule 124 (Form 55) and Rule 125 (Form 56), would show that the Official liquidator must plead and place sufficient material before the Court to show that the respondent has the material and information necessary for the purpose of filing the Statement of Affairs, and he did not have reasonable excuse for not filing the Statement of Affairs; the onus (initial burden of proof) lies on the Official Liquidator to show in his complaint under Section 454(5), besides other facts, whether the books of accounts are in his custody or not; whether he has made any efforts, and what efforts he has made, to secure possession of the books of accounts and other documents necessary for filing the statement of affairs; whether, in the light of the facts and circumstances, the excuse provided by any person, required to submit the statement of affairs as called for under Rule 124, is reasonable or not; whether such excuse, because of failure to reply to the notice issued under Rule 124, can be construed as unreasonable; he may even state whether the books of accounts are in his custody, and whether any application has been made to the Court for securing their possession; whether, inspite of the same, the accused have not complied with the requirements of Section 454; and whether they have, thereby, committed default under Section 454 without reasonable excuse.
As noted hereinabove, the initial onus to prove absence of reasonable excuse, for the persons failure to file the statement of affairs within the specified time, is on the prosecution i.e., the Official Liquidator, and it is only after he has adduced, prima facie, proof of relevant facts, which if unrebutted or left unexplained by the accused, would raise a presumption as to the existence of such a fact in issue i.e., absence of reasonable excuse, would the onus then shift to the accused to show proof of reasonable excuse. It is necessary, therefore, to refer to a few provisions of the Companies Act, 1956 and the Rules made thereunder, to ascertain the nature of the obligation placed thereby on the official liquidator to prove that the person, required to make and verify the Statement of affairs, had failed to do so without reasonable excuse.
Section 443(1)(d) of the Companies Act enabled the High Court, on hearing of the winding up petition, to make an order of winding up of the company. Rule 110 of the Companies Court Rules, 1959 required the order of winding up of the company to contain, at the foot thereof, a note stating that it will be the duty of such of the persons, as are liable to make out or concur in the making of the companys Statement of affairs under Section 454, to attend on the Official Liquidator at such time and place as he may appoint, and to give him all information he may require.
Section 444 stipulated that, where the Court makes an order for the winding up of a company, the Court shall forthwith cause intimation thereof to be sent to the Official Liquidator and the Registrar of the Companies. Rule 109 of the Companies (Court) Rules, 1959 provided that, where an order for the winding up of a company has been made, the Registrar shall forthwith send to the Official Liquidator of the Court, notice of the order under the seal of the Court in duplicate in Form No.50 or 51 together with a copy of the petition and the affidavit, if any, filed in support thereof. The notification in Form No.50 is required to contain, as a note, that it is the duty of such of the persons as are liable to make out, or to concur in making out, to a statement of affairs under Section 454, to attend on the Official Liquidator at such time and place as he may appoint and to give him all information he may require.
Rule 111 related to the order of winding up, required to be sent to the Official Liquidator, and its form. Rule 111(1) stipulated that the order of winding up shall be drawn up by the Registrar as soon as possible, and after it is signed and sealed, two certified copies thereof duly sealed shall be sent to the Official Liquidator. The winding up order was required to be made in Form No.52 with such modifications as may be necessary. Para 2 of Form 52 required the Court to order that the Official Liquidator, as a liquidator of the company, shall forthwith take charge of the property and effects of the said company. Para 3 required the Court to order the Official Liquidator to cause a sealed copy of the order of winding up to be served on the company by pre-paid registered post. Para 4 required the petitioner before the Court to advertise, within 14 days from the date of the winding up order, notice in the prescribed form of the making up of the winding up order in one issue of the newspapers. Para -5 required the petitioner to serve a certified copy, of the winding up order, on the Registrar of Companies not later than one month. The note to Form 52 stipulated that it shall be the duty of such of the persons, as are liable to make out or to concur in making out a Statement of affairs under Section 454, to attend on the Official Liquidator at such time and place as he may appoint, and to give him all the information he may require.
Form 55, in terms of Rule 124, is the notice to submit the Statement of affairs and to attend upon the Official Liquidator, and thereby the Official Liquidator called upon the person concerned to take notice that a winding up order was made on the date, month and year and that he, as the Official Liquidator of the Company, required the person to submit to him, within 21 days of the date of the winding up order or the time enabled by the Court or the Official Liquidator, the Statement of affairs in duplicate of the said company. The notice in Form No.55 required the Official Liquidator to inform such a person that the forms and instructions, for preparation of the said Statement of affairs, could be obtained from him at his office.
On a combined reading of the aforesaid provisions of the Companies Act, 1956, the Company Court Rules and the Forms prescribed therein, it is evident that the 21 day limit stipulated for filing the Statement of affairs, under Section 454(3) of the Act, would begin only from the date on which the notice in Form 55 is served on the person obligated to make the Statement of affairs, for it is only then can he be said to have been made aware of the fact that an order of winding up has been made by the Court. Any other construction would result in absurdity as a person would, then, be held to have committed an offence of which he was neither expected in law to be, nor was he in fact, aware of.
In the light of the aforesaid provisions, it is only after a notice is served on him by the Official Liquidator, in Form 55 (in accordance with Rule 124 of the Companies (Court) Rules), can the person, required to submit the Statement of affairs, be said to be aware of the order of winding up, and he is obligated to file the Statement of affairs within 21 days therefrom. The complaint of facts, submitted by the Official Liquidator under Section 454(5-A), must therefore state that a notice in Form 55 was served on the person, and that he failed to file the statement of affairs within 21 days therefrom.
In view of Rule 128(1) of the Companies (Court) Rules, 1959, referred to earlier in this order, the compliant of facts, required to be submitted by the Official Liquidator under Section 454(5A), should state whether the person, who was obligated to submit a Statement of affairs under Section 454, had sought extension of time; the reasons for which the person has sought such extension; and whether the Official Liquidator had granted or refused to grant him extension of time. Since Rule 128(2) requires the person, who seeks extension of time from the High Court, to give notice of such request to the Official Liquidator, the Liquidator would also be aware whether the person, required to file the Statement of affairs, has sought extension of time from the High Court, and whether extension of time was so granted. The complaint of facts to be submitted by the Official Liquidator, under Section 454(5-A) of the Act, should refer to these facts also.
In B.K. Bedi2, a Full Bench of the Delhi High Court opined that the provisions, requiring the notice to be sent to the concerned director, and enabling the director to seek extension from the official liquidator or the Court, would show that the burden, placed on the official liquidator, is not onerous; the official liquidator need only prove that the notice was sent to the concerned director to submit a statement of affairs, the prescribed time has lapsed, no extension has been sought for from him or from the Court, and the necessary books of the company were available for inspection by the concerned director; these are facts which are available to the official liquidator and, if he shows these facts, he would have, prima facie, proved that the director has, without reasonable excuse, made the default in complying with the requirements of Section 454; ita would then be for the concerned director to prove circumstances to justify his conduct, and to show that he had reasonable excuse in making the default. The relevant date and the time, within which the statement of affairs of the company should be filed by the director, is known to the official liquidator; the fact whether any extension was sought by the accused and was granted or refused are also within his knowledge; whether he had issued notice to the director would also be known to him; all these are matters which are, ordinarily, within the knowledge of the Complainant-official liquidator; and if, the prosecution shows that the Statement, as required by Section 454(1), has not been filed within the prescribed time, no extension has been granted, and the facility for preparation 'of the Statement was available, the same would, if accepted by the Court, shift the onus on to the accused to satisfy the Court that, inspite of these circumstances, he had a reasonable excuse for making the default, and to show the circumstances justifying his default.
While we are in agreement with the declaration of law, by the Full bench of the Delhi High Court in B.K. Bedi2, to the extent it held that the onus is on the prosecution i.e, the Official Liquidator to show that the Statement of affairs, as required by Section 454(1), has not been filed within the time prescribed in Section 454(3), and no extension of time had been granted for filing the statement of affairs either by the Official Liquidator or by the Court, we, most respectfully, disagree with their conclusion that the accused should also be informed that the necessary books of accounts of the company were available for inspection by the concerned person. We also find no merit in the submission of Sri P. Vikram, Learned Counsel for the respondent-accused, that the complaint of facts must also disclose the efforts made by the Official Liquidator to secure possession of the books of accounts, and other documents, necessary for filing the statement of affairs; and it is only after he takes all possible steps, to secure the books of accounts, can the Official Liquidator institute proceedings under Section 454(5A) of the Companies Act.
In this context, it is useful to take note of certain provisions of the Companies Act, and the Rules, relating to maintenance of books of accounts by the company; and the steps which the Official Liquidator should take, to secure custody of the books of accounts of a Company, on a winding up order being made. Under Section 209(1) of the Companies Act, 1956, every company shall keep, at its registered office, proper books of account with respect to (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company. Under the proviso thereto, all or any of the books of accounts aforesaid may be kept at such other place in India as the Board of Directors may decide, and when the Board of Directors so decide, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place. The provisions of Section 209, which relate to keeping of proper books of account of the company at its registered office, are quite explicit. Non - compliance with these provisions would make every director of the company liable to penal action (sub - section (6)(d) of Section 209). (Technical Consultancy House Private Limited v. Kuldip Raj Narang ).
Section 456(1) of the Act requires the Official Liquidator, when a winding up order has been made, to take into his custody, or under his control, the property, effects and actionable claims to which the company is entitled. Section 456(1A) stipulated that, for the purpose of enabling the liquidator to take into his custody or under his control, any property, effects or actionable claims to which the company is or appears to be entitled, the liquidator may, by writing, request the Chief Presidency Magistrate or the District Magistrate, within whose jurisdiction such property, effects or actionable claims or any books of accounts or other documents of the company may be found, to take possession thereof, and the Chief Presidency Magistrate or the District Magistrate may thereupon, after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of accounts or other documents and deliver possession thereof to the liquidator. Section 456 (1-B) stipulated that, for the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may, in his opinion, be necessary. Section 456(2) stipulated that all the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company. Section 468 of the Companies Act enabled an application to be made to the Court, seeking directions to the persons mentioned therein, to deliver the books of accounts in their possession. Section 477 enabled the Court to summon the person, suspected of having the companys properties, to examine them on oath, and to require them to produce such property of the company.
Rule 114 of the Companies (Court) Rules stipulated that, on a winding up order being made, the Official Liquidator shall forthwith take into his custody, or under his control, all the property, effects, and books and papers of the company, and it shall be the duty of all persons, having custody of any of the properties, books and papers of the company, to deliver possession thereof to the Official Liquidator.
The Statement of affairs, required to be made by the person, should contain the details in clauses (a) to (e) of Section 454(1) i.e details of the assets of the company, its debts and liabilities, its creditors, the debts due to the company, the name of the debtors, and such other information as may be prescribed by Rules, or those which the Official Liquidator may require. The complaint of facts, required to be made under Section 454(5-A), by the Official Liquidator must, therefore, also disclose whether the books of accounts of the company are in the custody of the official liquidator and whether the person concerned was made aware thereof, for it is only then can the person, after examining the books of accounts of the company, if available with the official liquidator, make a Statement of affairs furnishing the particulars stipulated in Clauses (a) to (d) of Section 454(1).
We must express our inability to agree with the submission of Sri P. Vikram, Learned Counsel for the accused, that, before taking steps under Section 454(5)& (5-A), the Official Liquidator should exhaust all the options available to him for taking custody of the books of accounts i.e., it is only after he takes the books of accounts into his custody, either from the Company or pursuant to the directions of the Court, can he then call upon the persons concerned to submit the Statement of affairs after verifying the books of accounts available with him, and only on their failure to do so, to then initiate proceedings under Section 454(5) & (5-A) of the Act.
The obligation placed by the first limb of Section 454(2), to make a Statement of affairs, is on the Directors, Manager, Secretary and the Chief Officer of the company holding office on the date of the winding up order. It is they who are in the management of the affairs of the company, and must be well aware of where the books of accounts are located, be it at the registered office of the company or at any other place where the Board of Directors have resolved, in terms of the proviso to Section 209(1) of the Act. As the obligation to make a Statement of affairs, based on such books of accounts, is placed on them, they cannot avoid their obligation claiming ignorance of where the books of accounts are located. In case the Official Liquidator is unable to take custody of the books of accounts (for instance if the persons mentioned in the first limb of Section 454(2) fail to hand them over to the Official Liquidator), he cannot be expected to wait till he obtains an order from the Court, to take custody of the books of accounts, before calling upon the persons, referred to in the first limb of Section 454(2), to submit the Statement of affairs.
As noted hereinabove, Rule 124 and Form 55 only require the Official Liquidator to intimate the person concerned that the Forms and instructions, for the preparation of the Statement of affairs, can be obtained from him. Likewise Rule126 only requires the Official Liquidator to issue necessary forms and give instructions regarding filing of the Statement of affairs. In the absence of any prescription either in the Act or the Rules, for the Official Liquidator to make available the books of accounts to the person called upon to make the Statement of affairs, no such obligation can be placed on him. As officers and directors of the Company, holding office on the date of the winding up order, would either have the books of accounts in their custody, or be aware of its location, it is for them to prepare the Statement of affairs, in the forms supplied to them by the Official Liquidator, based on the books of accounts wherever they may have been kept. It is only if the books of accounts are available with the Official Liquidator, would he be then required to inform the persons concerned that they could examine the books of accounts available with him in order to prepare the Statement of affairs.
We find no justification in construing various sub-sections of Section 454 and 455, or any other provisions of the Act, as requiring the Official Liquidator to first take custody of the books of accounts before he calls upon the persons concerned to submit the Statement of affairs. As noted hereinabove, while Section 454(3) requires the persons concerned to submit the Statement of affairs within 21 days of the winding up order, it confers power on the Official Liquidator and the Court to extend the time for a period not exceeding three months. Section 455 requires the Official Liquidator, after receipt of the Statement of affairs, to submit a preliminary report to the Court within a period of six months from the date of the winding up order. The very fact that timelines are specified, both for filing the Statement of affairs by the persons concerned, and for the Official Liquidator to submit a preliminary report to the Court after receipt of the Statement of affairs, makes it clear that the Official Liquidator need not wait till he takes custody of the books of accounts before calling upon the person concerned to submit the Statement of affairs. In the absence of any specific provision requiring the Official Liquidator to do so, it is impermissible for the Court to infer any such restriction.
Placing such an unduly onerous obligation on the official liquidator would also enable persons, in-charge of the management of the company, to evade their obligation to file the statement of affairs within 21 days of the winding up order, and avoid being prosecuted under Section 454(5) & (5-A) for their failure to do so, merely by not handing over the books of accounts to the official liquidator.
IV. SUMMARY:
In the result, the reference is answered holding that:
(1) the offence under Section 454(5) of the Companies Act, 1956 is if a person makes default in complying with any of the requirement under Section 454 without reasonable excuse, and not mere making default in complying with the requirements of Section 454.
(2) it is only if a person required under Section 454(2), to make the statement of affairs referred to in Section 454(1), fails to do so within 21 days of the order of winding up (Section 454(3) read with Section 454(8)) would he then be said to have committed an offence under Section 454(5).
(3) The initial onus is on the Official Liquidator to prove that the person concerned had no reasonable excuse for making default in filing the statement of affairs within time.
(4). While the initial burden to prove the ingredients of Section 454(5) is on the prosecution (i.e., the Official Liquidator), very slight evidence in this regard may suffice. The Official Liquidator would be deemed to have discharged his burden if he adduces evidence, circumstantial or direct, as is sufficient to raise a presumption that the accused did not have reasonable excuse for his failure to make the statement of affairs within time.
(5). On the initial onus being discharged by the Official Liquidator, the burden would then shift to the accused to prove facts, in his exclusive knowledge, to establish that he had reasonable excuse in not making the statement of affairs, before the Official Liquidator, within time.
(6). The compliant of facts, submitted by the Official Liquidator under Section 454(5-A), should disclose that:-
(a) the accused is a person referred to in Section 454(2) of the Act, and is liable to file the Statement of affairs.
(b) he had sent a notice to the persons, referred to in the first limb of Section 454(2), to submit a Statement of affairs;
(c) the time prescribed, for filing the statement of affairs, has lapsed;
(d) no extension of time, to file the Statement of affairs, had been sought either from him or from the Court;
(e) in case he has taken custody of the books of accounts of the company, he has intimated the persons concerned that the books of accounts were available with him, despite which the person concerned had failed to file the Statement of affairs; and
(f) reason why he believes that the person concerned had no reasonable excuse in making default in complying with the requirements of Section 454.
(7). If these facts are stated in the complaint of facts, the Court would then take cognizance under Section 454 (5-A), of the offence under Section 454(5), and then follow the procedure laid down in the Code of Criminal Procedure for trial of summons cases by Magistrates.
(8). the onus would then shift to the accused to show that he had reasonable excuse for not filing the statement of affairs within time.
(9) In the light of the aforesaid observations, the Order of the Division Bench, in Indla Satya Raju1, is affirmed.
The reference is answered accordingly. The matter shall be placed before the appropriate bench, for further consideration, in the light of the order passed by us.
____________________________ RAMESH RANGANATHAN, J ___________________________ A. RAJASHEKER REDDY, J __________________________________ M. SATYANARAYANA MURTHY, J Date:27.09.2018