Andhra HC (Pre-Telangana)
Safe Pack Polymers Ltd. (In ... vs G.V.N. Raju And Ors. on 18 January, 2008
Equivalent citations: [2008]143COMPCAS71(AP)
JUDGMENT V.V.S. Rao, J.
1. This application is filed under Section 468 of the Companies Act, 1956, ("the Companies Act", for brevity), seeking a direction to respondents to deliver possession of debtors' ledger for 1995-96 and other books of account and records of the company to the applicant. The application is filed by the official liquidator (OL) attached to this court acting as liquidator of M/s. Safe Pack Polymers Ltd. (in liquidation). The first respondent is ex-managing director and respondents Nos. 2 and 3 are former directors of the company.
2. The affidavit filed by the official liquidator in support of judges summons shows that the applicant-company was directed to be wound up by order dated April 29, 1999, in C.P. No. 69 of 1997. The official liquidator attached to this court was appointed as liquidator. He issued notices dated May 15, 1999, under sections 454 and 455 of the Companies Act, 1956, to the respondents requiring them to file statement of affairs (SoA), deliver assets, books of account and records of the company. Later he took possession of the assets and records available at the premises of the company situated at Nalgonda as well as Hayathnagar. During the verification of the statement of affairs under the head "Trade Debtors", it was noticed that M/s. Water-base Ltd., has to pay an amount of Rs. 3,24,000 to the company. The official liquidator therefore filed C.A. No. 614 of 2001 under Section 446(2)(b) of the Companies Act, 1956, for recovery of the said amount. During the hearing of the said application it transpired that the records taken over by the liquidator do not contain the debtors' ledger for 1995-96. Due to nonavailability of the same and other records, the official liquidator is not in a position to pursue recoveries and therefore the respondents may be directed to produce debtors ledger and other records.
3. After service of notice, respondents Nos. 1 and 2 entered appearance through a counsel and respondent No. 3 remained ex parte. However, the first respondent filed counter affidavit on behalf of the other respondents also. It is stated that the company established in 1987 for manufacturing poly propylene sacks used by cement industry, functioned well up to 1990. However, due to direct interference of ultra-left outfits, the company could not be run and unit became sick. In 1995, factory was shifted from Pedda-kaparthi village (Chityal mandal in Nalgonda district) to Hayathnagar, Hyderabad. After shifting part of the machinery, the directors were threatened and unit was to be abandoned. But the claims of IDBI and 150 workers were settled by the company.
4. It is further stated that the possession of the assets of the company were handed over to the official liquidator. On July 23, 1999 and August 19, 1999, the first respondent also entered into one-time settlement (OTS) and repaid debt by raising personal loans. A chartered accountant prepared statement of affairs which was accepted by the official liquidator in 1999 along with relevant records. The first respondent has nothing left with him in his possession and all the assets and available records were handed over to the official liquidator in 1999, by authorised representative, Sri Venumadhava Varma, who handed over the records including the assets to staff of official liquidator. It is not true to state that recovery of debt is being hindered owing to missing of debtors' ledger for 1995-96. Asking for the debtors' ledger for 1995-96 in 2007 is unreasonable and the same cannot be complied with as the respondents are left with no records. The official liquidator has taken over specific records and statement of affairs was submitted by the first respondent.
5. After, the first respondent filed counter, official liquidator filed a report (O.L.R. No. 649 of 2007, dated November 2, 2007). It is stated that the official liquidator has taken possession of assets and available records at Sri Rangaraju Nagar, Peddakaparthy village and at Hayathnagar, Hyderabad, on July 23, 1999 and August 19, 1999, respectively. The first respondent addressed a letter on August 19, 1999, to the official liquidator informing that some books are with their auditor for preparation of statement of affairs and requested time for submission of books. On October 12, 1999, the first respondent submitted statement of affairs vide letter dated September 30, 1999, inter alia, informing that the records had been destroyed by militant labourers and workers which only shows that the first respondent failed to deliver possession of the records though they were with the auditor. On August 19, 1999, representative of the first respondent handed over only properties and stocks. Whatever available records in the custody of the official liquidator have been verified and found that debtors' ledger for 1995-96 is not available therein. Along with report three documents referred therein have been annexed.
6. Learned Counsel for the official liquidator submits that initially the first respondent informed that the records are with auditors for preparation of statement of affairs. Subsequently, by submitting statement of affairs with letter dated September 30, 1999, the first respondent informed that many of the records have been destroyed by militant labour and that when the records were handed over by representative of the first respondent the ledger for 1995-96 was not handed over and therefore, the first respondent and other respondents are bound to handover the records including debtors' ledger. Per contra, learned Counsel for respondents Nos. 1 and 2 submits that the application is barred by limitation, that this court has no jurisdiction to entertain and order the application and that the records have been already destroyed. He placed reliance on the decision of the Allahabad High Court in Parasram Puria Trading and Finance Ltd. In re [2007] 135 Comp Cas 65 : [2007] 1 Comp LJ 138.
7. The point that would arise for consideration is whether the court cannot give a direction to former directors of the company in liquidation to produce records and debtors ledger for 1995-96 and whether an application filed by liquidator seeking such a direction is barred by limitation.
8. Section 456(2) of the Companies Act, 1956, contains a deeming provision. According to this, when once an order for winding up of the company is made by the court, all the properties and effects of the company shall be deemed to be in the custody of the court. Sub-section (1) of Section 456 of the Companies Act mandates that liquidator/provisional liquidator appointed by the court, shall take into his custody of the property, effects and actionable claims to which the company is or appears to be entitled to (emphasis Here printed in italics supplied). For the purpose of getting properties, effects, actionable claims, records, books of account and other documents, the liquidator or provisional liquidator can even invoke the magisterial powers of District Magistrate. When District Magistrate is approached under Section 456(1B) of the Companies Act, it shall be the duty of such District Magistrate to take possession of the properties and records and deliver possession to liquidator. Rule 114 of Companies (Court) Rules, 1959 ("the Rules", for brevity) also mandates that the official liquidator attached to the court shall forthwith take into his custody of the properties, effects, books of account and papers of the company. It also casts a duty on all persons having custody of properties and books of account to deliver possession to the official liquidator. The legal position is not seriously disputed nor denied. Therefore, under Section 456 of the Companies Act, the liquidator is bound to take possession of all the properties and books of account/records and in case if there is any difficulty, the liquidator has to approach the District Magistrate under Section 456(1A) of the Companies Act for taking delivery of possession. Rule 114 of the rules obligates all the persons concerned having possession of the records to deliver forthwith to the liquidator.
9. In case persons having custody of books of account/records failed to deliver possession to liquidator, what is the course open to liquidator. Section 468 of the Companies Act confers general power on company court in cases of winding up by court. The same reads as below:
468. Delivery of property to liquidator.--The court may, at any time after making a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, officer or other employee of the company, to pay, deliver, surrender or transfer forthwith, or within such time as the court directs, to the liquidator, any money, property or books and papers in his custody or under his control to which the company is prima facie entitled.
10. An analysis of the above provision would show that contributories of a company and officer or employee of the company can be directed to pay, deliver, surrender or transfer forthwith to the official liquidator any money. They may be directed to deliver property or books of account to which a company is prima facie entitled to the liquidator. The words "at any time after making a winding up order", appearing in Section 468 of the Companies Act would leave no doubt that period of limitation would not apply. The court is empowered to issue such a direction to contributory, officer or employee of the company to deliver books of account at any time after winding up order. The only condition imposed by the statute is that the company in liquidation must be shown to be prima facie entitled for, inter alia, such books of account. If an order is passed by the court directing former director of the company to deliver books of account and the same is not delivered to the liquidator, such person is liable for an offence with imprisonment for a term which may extend to two years or with fine or with both. Therefore, a question would arise as to whether former director is punishable under Section 538(1)(c) of the Companies Act even after lapse of 5 to 10 years. This is however a moot question for the reason that a person shall be liable for punishment under Section 538(1)(c) of the Companies Act only when he fails to deliver to liquidator books of company within time granted by court. Therefore, the plea of learned Counsel for the respondents that application is barred by limitation and this court is not competent to direct respondents to deliver books of account and debtors' ledger for 1995-96 cannot be accepted. This part of the point is answered accordingly against the respondents.
11. Whether, the company in liquidation is prima facie entitled to debtors' ledger for 1995-96 and other books of account and records of the company? It is admitted case that the company was ordered to be wound up by order dated September 24, 1999. Pursuant thereto authorised representative of ex-managing director handed over records available at the premises situated at Sri Rangaraju Nagar, Peddakaparthi village in Nalgonda district on March 27, 1999. Likewise, the records available at the premises of the company at Hayathnagar, Hyderabad, were handed over on August 19, 1999. The assets were also handed over to the liquidator. At that point of time, liquidator took possession of the assets and available records without any demur. Subsequently, the official liquidator moved an application being C.A. No. 614 of 2001 against M/s. Waterbase Ltd., seeking a direction to them to pay an amount of Rs. 3,24,000 as per statement of their debtors forming part of statement of affairs. During the enquiry it was pointed out that the concerned debtors' ledger showing the above transaction was not submitted by the management of company. Taking cue therefrom the present application is moved. Therefore, three years after taking possession of assets and records of the company from the representative of the first respondent during the course of hearing, C.A. No. 614 of 2001, the liquidator realised that the debtors' ledger for 1995-96 was not handed over. The case of the liquidator is that the said ledger is very much available with the respondents but they are not willing to handover the same. This is however strongly refuted by learned Counsel for the respondents.
12. In support of the plea that the first respondent is withholding debtors' ledger for 1995-96, learned Counsel for the official liquidator placed reliance on three documents. First one is letter dated August 19, 1999, addressed by the first respondent informing the official liquidator that the books of account have been submitted to auditors for preparation of statement of affairs and that he would submit the same as soon as the process of preparation of statement of affairs is completed. In this letter nowhere the first respondent admits that debtors' ledger for 1995-96 was also handed over to the auditors. Therefore, this document is of no help nor it proves allegation of the official liquidator that the ledger is being withheld by the first respondent.
13. The second document is dated September 30, 1999, which is also addressed by the first respondent to the liquidator. This is a letter accompanying statement of affairs in Form No. 57 as on April 29, 1999, along with an affidavit of concurrence to statement of affairs by respondents Nos. 2 and 3 in Form No. 58. In this document, the first respondent, inter alia, stated as below:
I have already handed over possession of our factories at Chityal, Nalgonda district and Hayathnagar, Hyderabad, to you in August, 1998, itself. The preparation of the statement has taken more time than anticipated on account of the following factors:
1. Many of the records had been destroyed by militant labour.
2. I have not been in a position to even enter the factory for the last two years due to physical threats. Hence, I am not in a position to evaluate the condition of various items of machinery, stocks and other assets. I feel the value of most of the inventory items including stores and spares would have deteriorated substantially besides having been pilfered by anti-social elements in Nalgonda.
3. Hence, the realisable value would be considerably low. Items of furniture and office equipment would have also been damaged/pilfered. Machinery would have also substantially deteriorated in value due to disuse. I have hence only hazarded a guess as regards the realisable value of assets. I would request to have them inventorised and valued by an approved valuer.
14. After saying as above, in subsequent paragraph, the first respondent also stated that, "the factory at Hayathnagar continued to work up to June, 1998. But due to Chityal unit workers coming and disrupting...operations at Hayathnagar also had to be suspended from July, 1998. The workers also destroyed many important documents, books and records at the factories and registered office". Even after receiving the said letter wherein it was informed that the records were destroyed by militant labour and workers, the official liquidator did not seriously pursue the matter nor two senior estate assistants in the office of the official liquidator who took possession of the premises, sheds Nos. 1 and 2, on as is where is basis, press for the list of records which were not handed over to them and which were destroyed by militant labourers and workers. This document does not in any manner support the official liquidator but in fact it proves the contention of the first respondent that some of the records were destroyed either by militant labourers or workers.
15. The third document is report of the two senior estate assistants in the office of the official liquidator stating that they have taken possession of the premises by locking and sealing the factory and that Sri Venumadhava Varma who is authorised by the first respondent to hand over properties of the company. This also does not in any manner help the liquidator.
16. Section 468 of the Companies Act requires contributory and officer/employee of the company to handover the records to which the company is prima facie entitled to, which means only records that are available. Indeed, Section 456(1) of the Companies Act also empowers the official liquidator to take custody of records to which company is entitled and any other document or effects. If the records are not available for any reason either because of act of god or because they were destroyed in fire by no stretch of imagination it can be held that the company "in presentee" would be prima facie entitled to such records. When the records are destroyed for whatever reason directing the contributory or officer or employee of the company or former director to hand over books of accounts and debtors' ledger would amount to asking them to perform impossible.
17. In such a situation the maxim lex non cogit ad impossibilia (the law does not compel a man to do that which he cannot possibly perform) applies. Section 468 of the Companies Act would show that while directing contributories and former directors to produce records or deliver books of account, the court cannot ignore the long lapse of time between the date of winding up and the date of filing of an application under section 468 of the Companies Act. The court also cannot ignore the realities and issue direction to former directors to produce records even if it is proved that the records were lost/destroyed/damaged and that whatever records available are already handed over to the liquidator.
18. The above maxim is well accepted in Indian law (see Presidential Election, 1974, In re AIR 1974 SC 1682 and Mohammed Gazi v. State of M.P. [2000] 4 SCC 342). Such a plea is also taken by the first respondent in paragraph 11 of his counter. When the first respondent alleges that books of account of the company were destroyed by militant labour and the said statement remains unrebutted, this court can draw an inference that the debtors' ledger for 1995-96 is also one of the documents, which was destroyed by militant labour either at Peddakaparthi or at Hayathnagar plant. A direction therefore cannot be issued to the respondents to perform the impossible by producing the records which were destroyed or damaged by militant labourers and workers, and thereby make respondents criminally liable under Section 538(1)(c) of the Companies Act.
19. The application, for the above reasons, is dismissed. But in the circumstances of this case, there shall be no order as to costs.