Rajasthan High Court - Jaipur
Official Liquidator Of M/S. Lath Steels ... vs . Shri Pawan Kumar Lath & Bimal Kumar Lath on 19 February, 2016
Author: Alok Sharma
Bench: Alok Sharma
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JAIPUR BENCH
ORDER
Official Liquidator of M/s. Lath Steels Private Limited (in Liquidation)
Vs. Shri Pawan Kumar Lath & Bimal Kumar Lath
S.B. Company Application No.100/2010
in (S.B. Company Petition No.4/1999)
Application under Section 454 of the Companies Act, 1956
read with Rule 9 of the Companies (Court) Rules, 1959
Date of Order: February 19, 2016.
PRESENT
HON'BLE MR. JUSTICE ALOK SHARMA
Ms. Sonal Singh for the applicant OL.
Mr. R.K. Meena, Official Liquidator.
Mr. Dinesh Bishnoi, for respondents.
BY THE COURT:
This company application has been filed under Section 454 of the Companies Act, 1956 (hereinafter `the Act of 1956') in the facts and circumstances following M/s. Lath Steels Private Limited (in liquidation) was wound up in Company Petition No.4/1999 on 17-10-2003. The Official Liquidator attached to this court was appointed as the Official Liquidator to take proceedings under the Act of 1956 till dissolution of the company. Subsequently vide order dated 30-9-2005, on an application made the Official Liquidator was allowed by this court to exercise the powers under Section 457(1) of the Act of 1956 qua the company in liquidation. This conferment inter alia allowed him to institute any suit/ prosecution in the name and on behalf of the company in liquidation. The Official Liquidator moved an application No.15/2006 for permission of this court to prosecute the respondents under Section 454(5) of the Act of 1956, which permission was granted by this court on 26-7-2006.
Section 454(1) of the Act of 1956 casts an obligation inter alia on the directors of the company in liquidation to file a statement of affairs of the company in liquidation in prescribed form, verified by an affidavit and containing the prescribed particulars before the Official Liquidator. Under section 454(3) of the Act of 1956 the statement of affairs is to be filed within twenty-one days from the relevant date (inter alia under Section 454(8) of the Act of 1956 the date of winding up) or within such extended time not exceeding three months from that date as the Official Liquidator or the court may for special reasons grant. Sub section 5 of the section 454 of the Act of 1956 provides that if any person without reasonable excuse is non compliant with the requirement of timely filing of the statement of affairs of the company in liquidation he shall be punishable with imprisonment for a term of two years or with fine which may extend to one thousand rupees for every day during which the default continues or with both.
Winding up order having been passed on 17-10-2003, the time for submitting statement of affairs by the directors of the company in liquidation expired on 7-11-2003. No application for extension of time was filed nor was any application filed for dispensing with the filing of statement of affairs filed under Rule 133 of the Company (Court) Rules, 1959 (hereinafter `the Rules of 1959). The Official Liquidator has stated that as per the last annual return filed on 30-9-1997 by the company before the Registrar of Companies prior to order of winding up, the respondents No.1 and 2 Mr. Pawan Kumar Lath and Bimal Kumar Lath were the promoter directors of the company in liquidation and continued to be so till the date of winding up order on 17-10-2003.
Following the winding up order, notice was sent to respondents No.1 and 2 on 28-11-2003 under Rule 124 of the Rules of 1959. The respondents vide their letter dated nil addressed to the Official Liquidator received in his office on 28-12-2005 stated that all records of the company in liquidation had been kept at the factory premises. And possession of the factory premises were taken over by RIICO on 25-11-2003 under Section 29 of the State Financial Corporation Act, 1951 (hereinafter `the Act of 1951'). And the records/ accounts of the company in liquidation were therefore in RIICO's possession. It was requested that the promoters directors be facilitated in accessing the records/ accounts with RIICO such that the respondents may be in a position to file the statement of affairs before the Official Liquidator. It has been submitted that the Official Liquidator, pursuant to the letter received from the respondents, sent a letter dated 7-2-2006 to RIICO requiring it to provide the records/ accounts of the company in liquidation. RIICO, instead, vide letter dated 18-2-2006 informed the Official Liquidator that it had taken over possession only of the fixed assets of the company in liquidation, and at the time of taking over possession of the factory situate at SP-9B Kukhera Industrial Area District Alwar no records/ accounts were available or taken over. The Official Liquidator has submitted that this fact was brought to the notice of the respondents, the ex promoter directors of the company in liquidation and they were again advised to submit the statutorily mandated statement of affairs of the company in liquidation, but to no avail. Copies of the notice dated 28-11-2003, ex-directors' letter received on 28-12-2005, letter dated 7-2-2007 sent by Official Liquidator to RIICO, RIICO's letter dated 18-2-2006, 17-4-2006 and letter dated 19-4-2006 sent by Official Liquidator to respondents are enclosed with the application as annexure-A,B,C,D,E,& F. On these facts, it has been submitted by counsel for the Official Liquidator that the respondents are clearly in breach of their statutory obligation to file the statement of affairs within twenty one days of passing of the winding up order dated 17-10-2003. An incomplete statement of affairs was filed only in January, 2015 followed by a revised yet still incomplete statement of affairs on 5-2-2016. This belated filing, defective as it is, does not constitute compliance. Counsel for the Official Liquidator has submitted that thus the respondents are evidently in breach of their obligation under section 454(3) of the Act of 1956 for over the last over 12 years i.e. 4410 days. And hence they be punished under section 454(5) of the Act of 1956.
Reply to application has been filed as also has been an affidavit in evidence in support thereof. It has been submitted that the statement of affairs could not be prepared and submitted as per Section 454 of the Act of 1956 owing to the records and accounts of the company in liquidation being at the company's factory at SP-9B Kukhera Industrial Area District Alwar which was taken possession of by RIICO on 25-11-2003 by resort to Section 29 of the Act of 1951. It has been submitted that the further cause for non filing of the statement of affairs of the company in liquidation till January, 2015 lay in the fact that the ex-directors of the company in liquidation had a dispute with the Chartered Accountants of the Company, who were connected with the petitioner in winding up petition. The Chartered Accountant, consequently did not cooperate with the respondents for reason of which the statement of affairs of the company after the order of the winding up on 17-10-2003 could not be filed. It has been submitted that the circumstances aforesaid constitute a reasonable cause for the respondents not being able to comply with the provisions of Section 454 of the Act of 1956no offence is thus made out and the application be dismissed.
Heard. Considered.
From the facts on record it is evident that the two respondents were promoter directors of the company in liquidation and continued so till the date of winding up order dated 17-10-2003. They were responsible for the day to day affairs of the company in liquidation till the date of winding up order. In the circumstances it was incumbent upon them to comply with the statutory provision i.e. section 454 of the Act of 1956 and file the statement of affairs of the company in liquidation within twenty one days of the winding up order dated 17-10-2003. Section 454(8) of the Act of 1956 provides the expression of the relevant date mentioned in sub-section 3 of Section 454 to inter alia mean to the date of winding up order and/ or appointment of the Official Liquidator. The dual defence set up by the respondents noted above is both contradictory and untenable. On the one hand, it has been stated that the statement of affairs could not be filed because the promoter directors had a running dispute with their Chartered Accountant, which was allegedly exacerbated by the fact that the petitioner in the winding up petition had a connection with the Chartered Accountant of the company in liquidation. There is no evidence of probative worth on record in support of the contention of the respondents being a victim of the conspiracy between the petitioner in winding up petition and the Chartered Accountant. Further in any event, it is also the case of the respondents that records and account books of the company in liquidation even though available were taken into possession by RIICO on 25-11-2003 when the fixed assets of the company in liquidation i.e. its factory at SP-9B Kukhera Industrial Area District Alwar was taken over by RIICO in exercise of powers under Section 29 of the Act of 1951. The falsity of this contention is evident from the fact that in the correspondence with RIICO by the Official Liquidator it was established that no record or books of account of the company in liquidation were found at SP-9B Kukhera Industrial Area District Alwar when it was taken in possession. The taking over of possession of the fixed assets of the company in liquidation at SP-9B Kukhera Industrial Area District Alwar was inventorised in the presence of Notary Public. The record/ accounts of the company in liquidation is not a part thereof. There is no material before this court to disbelieve the fact that RIICO did not taken in its possession the records and books of account of the company in liquidation on 25-11-2003. I am further of the considered view that in terms of scheme of the Act of 1956 the directors of a company (in liquidation or otherwise) have an obligation to control and preserve the records/ accounts of the company as they work as trustees in a fiduciary capacity and except for reasons beyond their control are obliged to comply with the various statutory provisions of the Act of 1956 including section 454 of the Act of 1956 following an order of winding up. In the instant case, it is the case of respondents themselves that the commercial production of the company at SP-9B Kukhera Industrial Area District Alwar was closed on 1-10-1998. And admittedly when RIICO took possession of assets of the company in liquidation SP-9B Kukhera Industrial Area District Alwar on 25-11-2003, a period of over five years had elapsed. It is incomprehensible as to how and why records and books of account would have been kept unattended in a closed factory by the respondents for about five years. The defences of the respondents are thus one way or the other incapable of any credence.
In the circumstances, I find that the respondents, the ex-directors of the company in liquidation are guilty of breach of their obligation under Section 454 of the Act of 1956 to file a statement of accounts of the company in liquidation within 21 days of the winding up order dated 17-10-2003. The default is intentional or in any event for reason of their recklessness negligence and disregard of the statutory provisions of law. The defence set up by the respondents for not filing a full and complete statement of affairs for 12 years is wholly untenable. The respondents did not have a reasonable excuse to do so. No plausible reason therefor obtains in the facts of the case with the respondents. And when the compliance was sought to be purportedly made belatedly in January, 2016 and on 5-2-2016 it was defective and incomplete, and hence no compliance in the eye of law.
Consequently, the offence alleged against the respondents under Section 454(5) of the Act of 1956 is clearly made out. Section 454 of the Act of 1956 was enacted by Parliament for a salutary purpose. The statements of affairs to be furnished by the director/ manager/ secretary/ a responsible officer of the company is intended to facilitate the winding up process of the company in liquidationfor identifying its assets and liquidating them and recovery of amounts due from the debtors of the company in liquidation to facilitate payment to creditors of the company in liquidation, primarily the workers, the secured/ unsecured creditors, and finally the dissolution of the company in liquidation. Non filing of statement of affairs also obstructs an enquiry to determine as to whether the company had been run in accordance with the provisions of the Act of 1956 and whether any malfeasance or misfeasance by the directors of the company during its existence is made out. Filing of statement of affairs, is imperative for orderly dissolution of company in winding up. Delays/ non compliance are detrimental to public interest.
Aside of the aforesaid, in the instant case the application under Section 454 of the Act of 1956 was filed in the year 2010. The respondents could be served only when the jurisdictional Superintendent of Police was directed to ensure the service on them by pasting notice of the application at their residence in terms of Section 65 of CrPC. They were quite obviously playing truant with the court.
The respondents having been found guilty of contravention of Section 454 of the Act of 1956, the question of sentence remains. Section 454(5) of the Act of 1956 provides that where there is no reasonable excuse for default in compliance with the requirement of Section 454, the defaulters would 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. Sentencing the respondents to imprisonment, in the first instance, would be harsh in the facts of the case. A sentence of fine would suffice. However the respondents have been in default/ non compliant with the provisions of section 454 of the Act of 1956 for a period over 4380 days from the date of winding up order dated 17-10-2003. Section 454(5) of the Act of 1956 provides for a fine of Rs.1000/- per day till the currency of the default. By a simple arithmetical calculation the amount of fine comes to Rs.43,80,000/-. But that is the maximum fine. In the facts of the case, I am of the considered view that the ends of justice would be served in holding the respondents directors Pawan Kumar Lath and Bimal Kumar Lath of the company in liquidation being liable to a fine of Rs.2 lacs, jointly/ severally as punishment for the reckless contravention of Section 454(3) of the Act of 1956. The said amount Rs.2 lacs fine be deposited in the Common Pool Fund with the Official Liquidator within a period of six months from today. However, in the event of non payment of the amount of fine as aforesaid, the respondents directors of the company in liquidation shall be liable, in the alternative, to serve simple imprisonment for a period of six months.
The application stands allowed.
(Alok Sharma), J.
arn/ All corrections made in the order have been incorporated in the order being emailed.
Arun Kumar Sharma, Private Secretary.