Delhi High Court
Re-Hoffland Finance Ltd vs . on 18 October, 2019
Author: Jayant Nath
Bench: Jayant Nath
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: 18.10.2019
+ CO.PET. 351/1999
RE-HOFFLAND FINANCE LTD. ..... Petitioner
Through Mr.Sanjeev Ralli, Mr.Atul Verma and Ms.Urvi Kohli,
Advs. for the Court Appointed Committee with Lt. Col.
P.M.Dubey, Chairman Court Appointed Committee
Member.
Mr. Ramesh Babu, Ms.Manisha Singh and Ms.Sanya
Panjwani, Advs. for RBI.
Ms.Ruchi Sindhwani, Sr.Standing Counsel with
Ms.Meghna Bharara, Adv. for the Official Liquidator.
Mr.Ravinder Sethi and Mr.Ravi Kant Chadha,
Sr.Advocates with Mr.Dhiraj Sachdeva and Mr.Puneet
Sharma, Adv. for M/s Goga Foods Ltd.(Applicant)
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
CA Nos. 652/2007 & 1445/2013
1. This winding up petition is filed by Reserve Bank of India under
Section 45 MC of the RBI Act seeking winding up of the respondent
Company. It has been stated in the petition that the respondent company is a
non-banking financial company and has been found to be in grave default of
the depositors. On 12.10.1999, this court appointed the Official Liquidator
(hereinafter referred to as the 'OL') as the Provisional Liquidator.
2. This court on 10.09.2004 under section 457(v) noted that the office of
the OL would not be fully equipped to expeditiously undertake the enormous
task required to complete the winding up process of the Hoffland Group of
Companies. The court appointed a Committee.
CO.PET. 351/1999 Page 1 of 26
3. Both these applications are filed by Goga Foods Limited. CA
652/2007 is filed by the said Goga Foods Limited seeking a direction that the
said applicant company is not a part of the Hoffland Group of Companies
and, therefore, be deleted from the list of companies being treated as part of
Hoffland Group of Companies. Direction is also sought that no action be
taken against the land, building and properties of the applicant company. CA
1445/2013 is also filed by Goga Foods Limited for a direction to frame
issues and allow the parties to lead evidence on the question involved i.e.
whether Goga Goods Ltd. can be treated as part of the Hoffland Group of
Companies/whether its assets were bought out of funds belonging to
Hoffland Finance Ltd.
4. The case of the applicant is that it was incorporated in the year 1991-
92 under the Companies Act, 1956. Shri B.B.Sharma (also the promoter of
Hoffland Finance Ltd.) was initially subscriber to the Articles of Association
of the Company. The company is engaged in packaging of milk for Mother
Dairy Foods Processing Limited. In 1991-95 the applicant bought land in
village Khekra, District Baghpat, U.P. where the factory premises was
constructed. The promoter Shri B.B.Sharma resigned on 7.3.1995 and Form
32 was filed with the Registrar of Companies. Hence, he was left with no
concern with the applicant company. It may be noted that Shri B.B.Sharma
is also the promoter of the Hoffland Group of Companies. In May 1996 the
general public subscribed to the shares of the applicant company to the tune
of Rs.274.75 lacs.
5. It is further pleaded that in 2003 a new management took over the said
company. They cleared the dues of Dena Bank to the tune of Rs.64 lacs,
carried out extensive renovations and spent amounts on security etc.
CO.PET. 351/1999 Page 2 of 26
6. The final winding up order of Hoffland Finance Limited was passed
by this court on 3.4.2003.
7. It is pleaded that the applicant company noticed some officials were
trying to demarcate the land of the applicant company and the neighbouring
land of Hoffland Finance Limited and Hoffland Engineers Limited pursuant
to orders passed by this court. It is pleaded that at present the said applicant
company has no connection with the Hoffland Group of Companies.
Initially Shri B.B.Sharma was the promoter and was running the applicant
company. However, he has exited in 1995 and transferred his shares and
resigned on 7.3.1995. It is further stated that being a public limited company
there is investment of more than 2.75 crores of public at large, it is not
connected with the Hoffland Group. Hence, the present application.
8. CA No.1445/2013 substantially reiterates the above contentions stated
in CA 652/2007. It has been pleaded that despite the fact that the applicant
company has no connect with the Hoffland Group of Companies, the Court
Appointed Committee is insisting that the applicant company is part of the
Hoffland Group of Companies. Hence, it is pleaded that in a claim of this
nature disputes of serious nature have arisen. It would be appropriate that
this court may frame issues and allow the parties to lead evidence.
9. Mr.B.B.Sharma, the promoter of the applicant has also filed a reply. In
his reply he had stated that he had promoted a large number of companies
being about 30 and that 90% of the funds required for business of all these
companies came from public deposits received in Hoffland Finance Limited.
He further pleaded that not only was the office, furniture, telephone common
of the Hoffland Group including the applicant Goga Foods Limited, the staff
was also common. The same staff members used to work for the Hoffland
CO.PET. 351/1999 Page 3 of 26
Group and for Goga Foods Limited. Goga Foods Limited had no
independent business or independent income. All properties in Khekra
Village were purchased through Mr.B.B.Sharma in the name of Goga Foods
Limited with the amount of public deposits received by Hoffland Finance
Limited. For this purpose, funds were routed through Hoffland Engineers to
Goga Foods Limited. Further it is stated that the land of the two companies,
namely, Hoffland Engineers Limited and Goga Foods Limited is contiguous
and interspersed to such an extent that there are many khasra Nos.
purchased in the name of Hoffland Engineers Limited and some portion of
the same land has been purchased in the name of Goga Foods Limited. No
demarcation has been done in such cases. It is stated that shares amounting
to Rs.1.65 crores of Goga Foods Ltd. most of which were allotted without
any cash coming to the company Goga Foods Limited.
In 1995-96 day to day functioning of Goga Foods Limited was handed
over to the brother of Shri B.B.Sharma, namely, Shri V.K.Sharma. No
consideration of any sort was paid by Shri V.K.Sharma. It is admitted that
Shri B.B.Sharma resigned from Directorship of Goga Foods Limited in
March 1995. It has been pleaded that though Mr.B.B.Sharma had resigned
from Directorship of Goga Foods Limited on 7.3.1995 yet land was also
purchased in his name for Goga Foods Limited thereafter from the farmers in
Khekra, Baghpat. He continued to operate the bank accounts of Goga Foods
Limited.
It is pleaded that out of 200,100 shares owned by him of Goga Foods
Limited Mr.Sharma transferred no share to anybody. No transfer deeds are
available to show transfer of the shares by Mr.Sharma. It is further claimed
that while Shri B.B.Sharma was in judicial custody, in 2003 one
CO.PET. 351/1999 Page 4 of 26
Mr.K.K.Jain and his brother Mr.Arvind Singh fraudulently became Directors
of Goga Foods Limited in connivance with one Mr. Om Vir Singh. They
forged relevant records and transferred in their own names the whole of
share capital of Rs.5.8 crores.
10. The Court Appointed Committee has also filed a reply broadly
reiterating the same facts. It has been reiterated that on 5.9.2008 this court
had directed Goga Foods Limited to submit complete details of the
transactions, instruments of transfer, payment of monetary consideration and
other particulars which have not been done till date. Subsequently, in 2013
an affidavit was filed of Shri Kailash Chand Jain which did not contain
details as sought for by the Court by its order dated 5.9.2008 and subsequent
orders. This court on 19.7.2013 taking into account the entire background
rejected the submission of Goga Foods Limited to refer the matter for
recording of statement of deponents and cross-examination. This order has
attained finality. Hence, the question of asking parties to lead evidence
would not arise. It has been reiterated that there is nothing placed on record
to show existence of any resources of Goga Foods Limited which enabled
the said company to buy the lands in question.
11. I have heard learned counsel for the parties. Parties have also filed
written submissions. Mr. Ravinder Sethi, learned senior counsel appearing
for the applicant Goga Foods Limited has pleaded as follows:-
(i) It has been strenuously pleaded that no evidence has been led by the
Official Liquidator or the Committee to show that any money belonging to
the Hoffland Group was used by Goga Foods Limited. No books of accounts
of Hoffland Finance Limited have been produced to show transfer of funds.
It is pleaded that the OL claims the land for the respondent Company, so the
CO.PET. 351/1999 Page 5 of 26
onus is on it to prove its contentions.
(ii) It has further been pleaded that the sale deeds of the property in
question are in favour of Goga Foods Limited. The property is in possession
of Goga Foods Limited. The cash receipts in the name of Goga Foods
Limited are available with the applicants. A total consideration of Rs.9 to 10
lacs was paid and about 100 sale deeds were executed in 1992-95. In these
facts the title of Goga Foods Limited to the said land cannot be disputed.
(iii) It is further stated that merely because Mr.B.B.Sharma has before the
Court Appointed Committee made some statements claiming that funds were
transferred to Goga Foods Limited from Hoffland Finance Limited would
not suffice to divest the applicant of the title to the land in question. It is
further stated that even if this court were to believe the statement of
Mr.B.B.Sharma then the claim of the said Mr.Sharma would be barred under
the Benami Transactions (Prohibition) Act.
(iv) It is further stated that there are serious disputed questions of fact and
hence this court must permit the applicant to lead evidence. Reliance is
placed on judgment of the Division Bench of this court in Company Appeal
No.65/2006 dated 30.05.2008 titled Empire Trading Company vs. Express
Hi Tech Private Limited & Ors., to contend that the court held that where
serious nature of contentions are raised it was imperative for the Company
Court to have framed issues, allowed evidence to be recorded. Reliance is
also placed on judgment of this court in the case of Ram Saran Das vs Raj
Kali, 1968(4) DLT 10 to submit that the presumption is in favour of the
apparent or ostensible title holder. Similarly, reliance is placed on judgment
of the Supreme Court in the case of Valliammal (D) By LRs vs.
Subramaniam & Ors., 2004(7) SCC 233 to contend that there is a
CO.PET. 351/1999 Page 6 of 26
presumption in law that the person who purchased the property is owner of
the same. The court also held that the heavy burden lies on the person who
pleads that the recorded owner is a Benami holder.
12. Learned senior standing counsel for the OL Mrs.Ruchi Sindhwani has
submitted as follows:-
(i) That three of the companies, namely, Goga Foods Limited, Hoffland
Engineers Limited and Hoffland Remedies Limited from the funds of
Hoffland Finance Limited bought the land in the area in question between
1991-95. Reliance is placed on the reports of the Economic Offences Wing
to confirm the said fact.
(ii) It is further pleaded that the land of the three companies as noted
above including Goga Foods Limited are intertwined in a manner to show
that the same entity bought the land. This is apparent from the report of the
SDM.
(iii) It is further pleaded that the balance sheet of Goga Foods Limited for
the year 1991-95 show that the company was suffering losses as there was
no profit. There was also no business being conducted by the company. As
there was no business and no profit there was no question of Goga Foods
Limited being able to raise adequate funds to buy the land in question.
Clearly, the land has been bought from the funds of Hoffland Finance
Ltd./its depositors.
13. Mr.Sanjeev Ralli learned counsel appearing for the Court Appointed
Committee has pointed out that the said factory of Goga Foods Limited has
land measuring 22,623 sq.meters out of which 5257 sq.meters is in the name
of Hoffland Engineers Limited. This is also confirmed by the Valuer
appointed by this Court "ITCOT Consultancy and Services Ltd.". Clearly,
CO.PET. 351/1999 Page 7 of 26
the land has been purchased by a Single entity, namely, the Hoffland Group.
It is further pleaded that the present Directors of Goga Foods Limited
are not known, no details have been filed.
Reliance is placed on section 542 and 543 of the Companies Act, 1956
to submit that the company court would have powers to take over the assets
of the respondent company Hoffland Finance Limited which includes the
land claimed by Goga Foods Limited.
14. Mr.Ravinder Sethi, learned senior counsel appearing for Goga Foods
Limited has reiterated that the sale deed of the properties of Goga Foods
Limited, the receipts are all in the name of Goga Foods Limited, possession
of the land is with Goga Foods Limited. The factory was built by Goga
Foods Limited. It is pleaded that these facts are sufficient to throw the onus
on the OL/Committee/Mr.B.B.Sharma. In the absence of any positive proof
it is pleaded that the said persons have no case against the land belonging to
Goga Foods Limited.
15. Some of the admitted facts of this case are that the land was purchased
in 1991-95 in the name of Goga Foods Limited through Mr.B.B.Sharma the
then Director. Mr.Sharma was also the promoter and a Director of Hoffland
Finance Limited. There are about 100 sale deeds executed in favour of Goga
Foods Limited from the land owners. All payments for purchase of the land
have been made in cash. Mr.B.B.Sharma resigned on 7.3.1995 as director of
Goga Foods.
16. Before proceeding further, I may look at the legal position in this
regard. Reference may be had to Sections 541 and 542 of the Companies
Act, 1956 which read as follows:-
CO.PET. 351/1999 Page 8 of 26
"541. LIABILITY WHERE PROPER ACCOUNTS NOT KEPT
(1) Where a company is being wound up, if it is shown that
proper books of account were not kept by the company
throughout the period of two years immediately preceding the
commencement of the winding up, or the period between the
incorporation of the company and the commencement of the
winding up, whichever is shorter, every officer of the company
who is in default shall, unless he shows that he acted honestly
and that in the circumstances in which the business of the
company was carried on, the default was excusable, be
punishable with imprisonment for a term which may extend to
one year.
(2) For the purposes of sub-section (1), it shall be deemed that
proper books of account have not been kept in the case of any
company, if there have not been kept -
(a) such books or accounts as are necessary to exhibit and explain
the transactions and financial position of the business of the
company, including books containing entries made from day to
day in sufficient detail of all cash received and all cash paid; and
(b) where the business of the company has involved dealings in
goods, statements of the annual stocktakings and (except in the
case of goods sold by way of ordinary retail trade) of all goods
sold and purchased, showing the goods and the buyers and the
sellers thereof in sufficient detail to enable those goods and those
buyers and sellers to be identified.
542. LIABILITY FOR FRAUDULENT CONDUCT OF
BUSINESS
(1) If in the course of the winding up of a company, it appears
that any business of the company has been carried on, with intent
to defraud creditors of the company or any other persons or for
any fraudulent purpose, the court on the application of the
Official Liquidator, or the liquidator or any creditor or
contributory of the company, may, if it thinks it proper so to do,
CO.PET. 351/1999 Page 9 of 26
declare that any persons who were knowingly parties to the
carrying on of the business in the manner aforesaid shall be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company as the court
may direct.
On the hearing of an application under this sub-section, the
Official Liquidator or the liquidator, as the case may be, may
himself give evidence or call witnesses.
(2) (a) Where the court makes any such declaration, it may give
such further directions as it thinks proper for the purpose of
giving effect to that declaration.
(b) In particular, the court may make provision for making the
liability of any such person under the declaration a charge on any
debt or obligation due from the company to him, or on any
mortgage or charge or any interest in any mortgage or charge on
any assets of the company held by or vested in him, or any
person on his behalf, or any person claiming as assignee from or
through the person liable or any person acting on his behalf.
(c) The court may, from time to time, make such further order as
may be necessary for the purpose of enforcing any charge
imposed under this sub-section.
(d) For the purpose of this sub-section, the expression "assignee"
includes any person to whom or in whose favour, by the
directions of the person liable, the debt, obligation, mortgage or
charge was created, issued or transferred or the interest was
created, but does not include an assignee for valuable
consideration (not including consideration by way of marriage)
given in good faith and without notice of any of the matters on
the ground of which the declaration is made.
(3) Where any business of a company is carried on with such
intent or for such purpose as is mentioned in sub-section (1),
every person who was knowingly a party to the carrying on of
CO.PET. 351/1999 Page 10 of 26
the business in the manner aforesaid, shall be punishable with
imprisonment for a term which may extend to two years, or with
fine which may extend to fifty thousand rupees, or with both.
(4) This section shall apply, notwithstanding that the person
concerned may be criminally liable in respect of the matters on
the ground of which the declaration is to be made."
17. A Coordinate Bench of this court in the case of M.R. Bakshi vs.
Fintra Systems Ltd., 2008 (151) DLT 1 on Section 542 of the Companies
Act, 1956 held as follows:-
"10. Having considered the respective submissions I am, as at
present advised, inclined to agree with the submissions of Mr.
Rajiv Shakdher, Sr. Advocate the learned Amicus Curiae.
Keeping in view the purpose for which Section 542 has been
enacted, and the fact that timely action is of the essence, not only
to prevent the presentation of a fiat accompli by the fraudulent
Directors of the company, but also to provide relief to the victims
of the fraud, it seems that the establishment of the fraudulent
conduct for attracting the provision of Section 542 of the
Companies Act does not require the same standard of proof as in
a criminal trial and the rigours of the law of evidence as apply to
a criminal trial would not apply to establish the commission of
fraudulent acts and omissions by the Directors and managers of a
company. It has also to be kept in mind that by its very nature,
fraud is not easy to establish. This is even more so, when the
fraudulent conduct is undertaken by the Directors of a company,
sitting in their own office, with a view to defraud the
creditors/investors who, though the victim of the fraud, are not
involved in the transactions which constitute such conduct, and
may have no personal knowledge of the same. In K.T.
Dharanendrah v. R.T. Authority AIR 1987 SC 1321 the Supreme
Court, while dealing with a case under the Customs Act, 1962
observed that "An economic offence is committed with cool
calculation and deliberate design with an eye on personal profit
regardless of the consequence to the Community. A disregard for
the interest of the Community can be manifested only at the cost
CO.PET. 351/1999 Page 11 of 26
of forfeiting the trust and faith of the Community in the system to
administer justice in an even handed manner without fear of
criticism from the quarters which view white collar crimes with a
permissive eye unmindful of the damage done to the National
Economy and National Interest."
11. I also find merit in the submission of Mr. Shakdher that it is
not necessary that each transaction/instance of funds being
siphoned or fraudulent conduct needs to be established from the
beginning to the end to invoke Section 542 of the Act. That is
because it would be reasonable to assume, that
directors/managers who are shown to have indulged in even a
single act of fraud in the discharge of their duties towards the
company, its shareholders and creditors, would have generally
resorted to such conduct. Traits of greed and dishonesty amongst
men are known to manifest whenever the opportunity presents
itself. This is even more true, when such conduct is displayed by
the relatively affluent members of society, as their conduct is not
driven by their need or undertaken in desperation. The pattern
that emerges from the conduct of Mr. & Mrs. Shakt shows that
their actions were focused on collecting funds in the company
from the public by promising huge returns, and then siphoning
them out in one way or another. That seems to have been the true
"business activity" of the promoter Directors and managers of the
company. No other business appears to have been conducted by
the company with a view to earn profits for the company, its
shareholders and creditors. In the aforesaid process, the entity of
the company has been misused and exploited.
12. From the aforesaid reports of the CBI, prima facie it appears
to me that this is a fit case for holding the directors of the
company in liquidation personally liable, without any limitation
of liability. Section 542 is an exception to the general rule that in
a limited liability company, the liability of the shareholders and
directors is limited. The purpose and object of Section 542 is to
catch up with the fraudulent directors and other persons
responsible for defrauding the creditors and shareholders of the
company, who deliberately conduct the affairs of the company in
CO.PET. 351/1999 Page 12 of 26
a manner as to rob the company of its resources and allow it to
bleed. Conduct, which does not appear to be bona fide or
innocent, or a mere judgmental error, but which personally
enriches the Directors/managers of the company directly or
indirectly at the expense of the company, permits the Courts to
take away the protective shield that the directors/manager enjoy
under the law. The shield of corporate entity with limited liability
of the shareholders/Directors, provided by the law is not meant to
protect fraudsters. They cannot be permitted to defraud the
shareholders and the public through the instrumentality of a
corporate entity with limited liability, and then mock at their
shareholders and creditors and the Courts, and seek to protect
themselves behind the veil of the Corporate Entity. The law is
not toothless, but empowers the Courts with authority to deal
with such situations."
18. The Supreme Court in Official Liquidator vs. Parthasarathi Sinha
and Others, (1983) 1 SCC 538 held as follows:-
"18. The liability arising under the misfeasance proceedings is
founded on the principle that a person who has caused loss to
the company by an act amounting to breach of trust should
make good of the loss. Section 543 of the Act does not really
create any new liability. It only provides for a summary remedy
for determining the amount payable by such person on proof of
the necessary ingredients. The section authorises the court to
direct such persons chargeable under it to pay a sum of money
to the company by way of compensation. This is not a provision
intended to punish a man who has been found guilty of
misfeasance but for compensating the company in respect of the
loss occasioned by his misfeasance. Whenever there is a
relationship based on contract, quasi-contract, some fiduciary
relation or a failure to perform a duty, there is no abatement of
the liability on the death of the wrong-doer. When once the
liability is declared it is open to the Official Liquidator to realise
the amount due by resorting to Section 634 of the Act and
Section 50 of the Code of Civil Procedure. In Tendolkar
case [(1973) 1 SCC 602] this Court did not consider the effect
CO.PET. 351/1999 Page 13 of 26
of Section 634 of the Act which made the relevant provisions of
the Code of Civil Procedure relating to execution of decrees
applicable to orders passed by the court under the Act."
19. Reference may also be had to the works of the learned Author „A
Ramaiya, Guide to the Companies Act, (17th Edition 2010)‟ where while
dealing with Section 542 of the Act, it is stated as follows:
"A person can be held liable for fraudulent trading, if he
assisted in the commission of the fraud. It is not necessary that
he should be actively involved in the management of the
company. The court said that as a matter of ordinary language
the section was not restricted to those who performed a
managerial role. Moreover, the legislative history of the
provision pointed towards a wider interpretation, extending not
only to a person who carried on business or assisted in the
carrying on of the liquidated company‟s business but also to a
person who had participated in the fraudulent acts of the
company Morris v. Banque Arabe et Internationale
d'investment SA (No2): [2001] 1 BCLC 263."
20. Clearly, given the manner in which fraudulent acts are undertaken
under deceit and camouflage, if done with the affairs of a company, the
standard of proof required to prove such fraudulent conduct would
necessarily be less stringent.
21. I may now see some of the facts brought on record by the OL and by
the Committee which the applicants have not been able to rebut or explain.
The said facts are now spelt out:
[I]
22. I may first take note of statements made by Mr.B.B. Sharma,
admittedly the promoter of the applicant Company when the lands in
question were bought, namely, for the period 1991 to 1996. The statements
CO.PET. 351/1999 Page 14 of 26
had been recorded before the Committee constituted by this court and were
recorded on various dates. In the statement dated 18.07.2016, he clearly
states that these properties were bought in the capacity of the Managing
Director of these companies and the source of funds were the deposits of the
depositors of Hoffland Finance Ltd.
23. No doubt, the applicants do not accept these statements and state that
these are mere self-serving statements which do not have any evidentiary
value. However, given these allegations, in my opinion, it was for the
applicants to have placed on record appropriate documents and records to
show that the properties in question have been bought from the internal
resources of the Company. This would be the best evidence to rebut the
contentions of the OL and others and to settle the matter in favour of the
applicant. The applicants have however failed to do the needful.
[II]
24. Another important fact is that the applicants have placed on record
some balance sheets. The applicants have placed on record the balance
sheets of Goga Foods Limited for the year 1991-92 till 1993-94 i.e. the
period when most of the land in question was bought. A reading of the
balance sheet reveals interesting facts. The balance sheet for the year 1991-
92 shows a loss of Rs.97,088.70/-. There is no income shown. For the year
1992-93 the Profit and Loss Account shows an income through commission
and interest of Rs.4,42,555.11/- and a gross profit of Rs.14,520.80/-.
Similarly for the next Financial year, namely, 1993-94 an income again
through commission and interest is shown as Rs.5,84,832.29/- and the gross
profit is shown as Rs.50,004.48/-. It is manifest that the said Goga Foods
Limited at that time was doing no work. The balance sheet is a dressed up
CO.PET. 351/1999 Page 15 of 26
balance sheet to show some nominal profit. There is no explanation as to
from where this commission that has been shown as income was earned. The
meager profits earned do not justify or show any funds available for
purchase of the land in question.
25. Clearly, the balance sheets show that the applicant lacked the
wherewithal to have purchased the said immovable properites in 1992-
1995.
[III]
26. Another important aspect which comes out from the submissions
made by the OL and the Committee Appointed by the court is the manner in
which the properties have been purchased. It has been stated by the OL,
which aspect is not denied by the applicants, that the lands in question in
Village Khekra, District Baghpat of Goga Foods Ltd. and Hoffland Engieers
Ltd. are interspersed and it is difficult to separate the two. A map as given by
the SDM has been placed on record to demonstrate the above submision. It
has futher been pointed out that the factory of Goga Foods Ltd. has 22623
sq. meters land out of which 5257 sq. meters land is in the name of Hoffland
Engineers Ltd. Further, land in the name of Goga Foods Ltd. is also situated
outside the factory premises. Meaning thereby, no demarcation was
attempted to be made to identify spearately the lands that belong to Goga
Foods Ltd. and the land that belongs to Hoffland Engineers Ltd. There is no
explanation how the applicant is sitting on land belonging to Hoffland
Engineers Ltd. and has taken it as part of the factory. The map which has
been filed by the OL which is said to have been given by the SDM is as
follows:-
CO.PET. 351/1999 Page 16 of 26
CO.PET. 351/1999 Page 17 of 26
27. The portion in blue belongs to Goga Foods Ltd. while the portion in
red belongs to Hoffland Engineers Ltd. The factory premises is delineated by
a yellow line. The above map clearly demonstrates the stand taken by the OL
about the absence of any proper demarcation while purchasing the land as to
which land belongs to Goga Foods Ltd. and which land belongs to Hoffland
Engineers Ltd. Land of Hoffland Engineers is also within the factory
premises of Goga Food Ltd. Land in the name of Goga Food Ltd. is also
scattered outside the factory premises.
Admittedly, the applicant has not laid any claim on this land situated
outside the factory premises. In fact, on 18.11.2010, a statement was made
on instructions by the learned senior counsel for the applicant that they have
no objection if the land situated outside the factory but in the name of Goga
Foods Ltd. is sold and proceeds are used to pay the depositors of Hoffland
Finance Ltd. It is manifest that the applicant have shown no interest in the
land purchased in the name of the applicant Goga Foods Ltd. which is
located outside the factory premises since the last 25 years.
28. The manner of purchase of the land clearly demonstrates that one
entity, namely, the Hoffland Group purchased the same.
[IV]
29. I may also mention that the OL has relied upon the statement of the
Economic Offences Wing to show that the funds have also been transferred
to Goga Foods Ltd. Relinace has been placed on a communication receivd by
the court from the Deputy Commissioner, Economic Offences Wing which
states that the property of Goga Foods Ltd. is a part of the Hoffland Group
and that a sum of Rs. 5,20,000/- was transferred to the accounts of Goga
Foods Ltd. for the said purpose.
CO.PET. 351/1999 Page 18 of 26
[V]
30. Another imporant aspect in this case is the manner in which the
applicants have refused to divulge details and information to this court. It has
been claimed by the applicants that in 2003 the new management of the
company has taken over. The new management has claimed to have made
huge investments in the company and paid the creditors, cleared the dues of
Dena Bank and carried on extensive renovation and spent huge amounts on
security etc.
It is an admitted fact that the company when it was formed was
controlled by Mr.B.B.Sharma who was the promoter of the applicant
company and Hoffland finance Limited. It is an admitted fact that
Mr.B.B.Sharma resigned in 1995. At that time he held substantial shares in
Goga Foods Limited being the promoter of the same. In his statement dated
20.6.2007 recorded before the Committee Constituted by the Court he has
said that he held more than 2 lac shares in Goga Foods Limited having face
value of Rs.10/- and that the shares have never been transferred to anyone
else. He also states that the original of these shares alongwith transfer deeds
were kept in private safe deposit vault in South Delhi by the Chief Manager
but the whereabouts of the Chief Manager are not known. Thereafter the said
Mr. B.B.Sharma has been in custody for a long time. The present
management claims to have bought the shareholding in 2003. No details are
provided as to how and from whom the present management bought the
shareholdings in 2003. There is no detail given as to how from 1995-2003
the shareholding and management of Goga Foods Limited was transferred
out of the hands of Mr. B.B.Sharma and was bought by the present
management. The present management when they took over in 2003 must
CO.PET. 351/1999 Page 19 of 26
have purchased shares from somebody and paid valuable consideration.
Records of the applicant Company would reflect all these transactions.
Nothing is placed on record. The best evidence which was in possession of
the applicants has been hidden from the court.
31. The aforenoted conduct of the applicants is further apparent on seeing
the orders passed by this court. On 05.09.2008 this court passed the
following order:-
"1. Time is sought to file the rejoinder to the reply filed by the
committee. Let the same be filed within four weeks. The same
shall include a complete explanation of the manner and mode in
which the sale consideration(s) have been effected or paid by the
applicant to the erstwhile owners of the property which are the
subject matter of the sale deeds enclosed with the application.
2. The applicants shall also give complete details of the
transactions, instruments of transfer, payment of monetary
consideration including particulars of cheque numbers with
regard to any other land over which M/s Goga Foods Ltd. is
claiming the ownership, but the committee alleges as having
been the purchased out of the fund of Hoffland Finance Ltd.
Copy of all the bank accounts, statement of account of the bank,
details of bank instruments in respect of these transactions and
duly audited account(s) in this behalf shall be placed on record.
The applicant shall also placed on record all relevant
revenue records in this behalf.
3. Having regard to the nature of the claims made by the
applicant as well as on behalf of the applicant company, it is
directed that all parties shall maintain status quo with regard to
title, possession and construction on all land(s) which are alleged
to have been purchased out of funds of M/s Hoffland Finance
Ltd.
Copy of this order shall be served by this committee upon
the concerned police station(s) the revenue authorities and the
CO.PET. 351/1999 Page 20 of 26
registrar(s) of documents.
It is made clear however that the running of the factory by
M/s Goga Food Ltd. has not been prohibited in any manner.
Interim orders passed earlier by this order shall continue
till the next date.
xxx"
32. Despite several orders no such details were filed by the applicants.
Finally after much lapse of time the applicant filed the affidavit of Shri
Kailash jain. This court, however, rejected the affidavit on 19.7.2013 stating
as follows:-
"11. On a careful consideration of the rival arguments, I am
of the view that Mr. Ralli is right in his submission that this
Court is not bound to receive the affidavit in evidence if it
does not strictly conform to the directions of this Court in its
order dated 05.09.2008 reiterated in the later order dated
21.05.2013. It is not the case of the learned counsel for the
GFL that the affidavit contains all the requirements as
directed by orders of this Court referred to above. He has not
drawn my attention to the Bank statements, statement of
account with the Banks and the Bank instruments, which
were directed by this Court to be filed with the affidavit. The
directions of this Court have to be scrupulously complied
with. The purpose of the affidavit is to give an opportunity to
GFL to show the source of funds for the acquisition of the
land. The entire matter emanates from the apprehension
expressed by the Official Liquidator that the funds of HFL
were siphoned off and utilised in purchasing assets for sister
concerns including GFL. This apprehension is recorded in
the order of this Court passed on 05.12.2003 in Company
Application No.777/2003 in Company Petition No.351/1999.
It is only those documents or records which will show the
source of funds for the acquisition of the assets that would be
CO.PET. 351/1999 Page 21 of 26
relevant to be read along with the affidavit. It is only on this
basis that this Court, in its order dated 05.09.2008, directed
GFL to file the affidavit accompanied by the Bank
statements, statement of account with the Bank and the Bank
transfer instruments as well as the audited accounts. No doubt
the filing of the balance sheets may throw light on the
position of the assets and liabilities of GFL on a particular
date; however, the balance sheet by itself cannot throw any
light on the source of acquisition of the lands. By filing
documents which are not relevant and which cannot throw
light as to the source of funds, GFL cannot be permitted to
delay the proceedings further. It is a matter of grave concern
that for a period of almost five years GFL chose not to act
and comply with the directions of this Court vide order dated
05.09.2008. Though this order was passed in its presence,
GFL failed to bring to the notice of the Court that its old
records had been allegedly stolen in April, 2008. It is difficult
to believe that the omission to mention this to the Court was
an inadvertence or oversight. This fact was brought to the
notice of the Court for the first time on 21.05.2013 and that
did annoy this Court considerably. There is no explanation
why the bank statements, statement of account with the bank,
bank instruments, etc. could not be obtained from the banks
even if it is true that old records were stolen. Now the
applicant has come forward to file the affidavit, after a period
of almost five years from 05.09.2008, and that too without
the documents that were directed to be filed along with the
affidavit. The intention of the applicant, in the above
circumstances, appears to be not bona fide. It seems to be a
ploy to delay the proceedings. I, therefore, agree with the
contention of the learned counsel for the committee that
taking the affidavit on record and directing the cross-
examination of the deponent would be nothing but a waste of
time. Nothing is to be gained from looking at the balance
sheets, the sale documents, the receipts issued by the persons
from whom the lands were acquired, etc., because the
acquisition of the lands by GFL is a fact which is not in
dispute. The details given in the affidavit only reiterate this
CO.PET. 351/1999 Page 22 of 26
fact. What is in dispute is the source of acquisition and that
can be located with precision only from the Bank statements,
statements of account with the Bank, details of Bank
instruments, etc. In their absence the affidavit would serve no
useful purpose.
12. Having regard to the facts of the present case, I do not
consider it necessary to discuss the judgment of the Division
Bench of this Court (supra).
13.For the above reasons I do not see any reason for taking
the affidavit, as presently filed, on record."
33. It clearly follows from the above order that the applicant company has
been unable to explain the source of funds for acquisition of the land. The
applicant has not been able to show bank statements, the statement of
accounts, Bank Instruments etc. Despite several opportunities the records
which would normally be in the power and possession of the applicants have
been deliberately hidden from the court. This clearly raises a strong
suspicion about the acts and conduct of the applicants.
34. Reference in this context may be had to the judgment of the Supreme
Court in Union of India vs. Ibrahim Uddin, 2012 8 SCC 148 where the
Supreme Court held as follows:-
"12. Generally, it is the duty of the party to lead the best evidence
in his possession, which could throw light on the issue in
controversy and in case such material evidence is withheld, the
court may draw adverse inference under Section 114 Illustration
(g) of the Evidence Act notwithstanding, that the onus of proof
did not lie on such party and it was not called upon to produce
the said evidence.[Vide Murugesam Pillai v. Manickavasaka
Pandara [AIR 1917 PC 6], Hiralal v. Badkulal [AIR 1953 SC
225] , A. Raghavamma v. A. Chenchamma [AIR 1964 SC
136], Union of India v. Mahadeolal Prabhu Dayal [AIR 1965 SC
CO.PET. 351/1999 Page 23 of 26
1755] , Gopal Krishnaji Ketkar v. Mohd. Haji Latif [AIR 1968
SC 1413], BHEL v. State of U.P. [(2003) 6 SCC
528], Mussauddin Ahmed v. State of Assam [(2009) 14 SCC 541]
and Khatri Hotels (P) Ltd. v. Union of India [(2011) 9 SCC
126].]
xxxx
24. Thus, in view of the above, the law on the issue can be
summarised to the effect that the issue of drawing adverse
inference is required to be decided by the court taking into
consideration the pleadings of the parties and by deciding
whether any document/evidence, withheld, has any relevance at
all or omission of its production would directly establish the case
of the other side. The court cannot lose sight of the fact that
burden of proof is on the party which makes a factual averment.
The court has to consider further as to whether the other side
could file interrogatories or apply for inspection and production
of the documents, etc. as is required under Order 11 CPC.
Conduct and diligence of the other party is also of paramount
importance. Presumption of adverse inference for non-production
of evidence is always optional and a relevant factor to be
considered in the background of facts involved in the case.
Existence of some other circumstances may justify non-
production of such documents on some reasonable grounds. In
case one party has asked the court to direct the other side to
produce the document and the other side failed to comply with
the court's order, the court may be justified in drawing the
adverse inference. All the pros and cons must be examined
before the adverse inference is drawn. Such presumption is
permissible, if other larger evidence is shown to the contrary."
35. In the present case as noted above, despite directions of this court
dated 5.9.2008 and subsequently, the applicants have failed to produce
relevant documents to show the details. Clearly, this court would draw an
adverse inference against the applicants for having withheld from the court
CO.PET. 351/1999 Page 24 of 26
the most relevant documents/important documents to show that it is not a
part of the Hoffland Group and the funds for purchase of the land in question
were not of the Hoffland Group but of the applicant company.
36. A strong plea that has been raised by the learned senior counsel for the
applicant that the conclusion should not be drawn against the applicant
without an opportunity to the applicant to lead evidence after framing of
issues. This plea is misplaced. As already noted above this court had on
19.07.2013 rejected the affidavit filed by the applicant pursuant to the orders
of this court dated 05.09.2008. This court noted that the affidavit filed by the
applicant five years after the order of the court without relevant documents is
a ploy only to delay the proceedings. This court rejected the contention of
the applicant seeking cross-examination of the deponent as it was noted that
nothing can be gained from looking at the balance sheets, the sale
documents, the receipts documents because the acquisition of the land by
Goga Foods Ltd. is a fact which is not in dispute. In my opinion, the said
plea of the applicant already stands rejected and the said order has attained
finality.
37. That apart, it is clear that the plea of the applicants lacks bona fide.
The best evidence was available with the applicants which they have chosen
not to place on record. Only as a mechanism and ploy to delay the
proceedings this desperate plea is being taken that this court may frame
issues and record evidence. I see no merit in the said contention.
38. Another plea has been raised by Ld. Sr. Counsel for the applicant is
that if the contentions of the OL are accepted then the land in question would
fall within the parameters of a benami property. This plea was not elaborated
in the course of the arguments. Even otherwise the nature of transactions in
CO.PET. 351/1999 Page 25 of 26
issue is such that the provisions of the Benami Transactions (Prohibition)
Act, 1988 would not be attracted.
39. In view of the above, in my opinion there is no merit in the present
applications. The same are dismissed. OL is free to take steps regarding the
property as per law.
JAYANT NATH, J.
OCTOBER 18, 2019 n CO.PET. 351/1999 Page 26 of 26