1984 (4) TMI 214 - HC - Companies Law

Issues Involved:
1. Requirement and submission of the statement of affairs under Section 454 of the Companies Act, 1956.
2. Liability and default of the directors in submitting the statement of affairs.
3. Burden of proof regarding "reasonable excuse" for default.
4. Conviction and sentencing of the accused directors.

Issue-wise Detailed Analysis:

1. Requirement and Submission of the Statement of Affairs under Section 454 of the Companies Act, 1956:
The judgment revolves around the mandatory requirement under Section 454(1) of the Companies Act, 1956, which obligates directors to submit a statement of affairs of the company in the prescribed form, verified by an affidavit, upon a winding-up order. The statement must include particulars mentioned in clauses (a) to (e) of the section. The court emphasized that the use of the words "there shall be made out and submitted" indicates the obligatory nature of this requirement unless the court directs otherwise.

2. Liability and Default of the Directors in Submitting the Statement of Affairs:
The directors of the company, including the managing director, were served a notice on November 4, 1978, to submit the statement of affairs. Despite multiple extensions granted by the liquidator, the directors failed to comply, leading to the filing of a complaint on December 20, 1979. The court noted that the liability to submit the statement lies with the directors as per Section 454(2), and the statement must be submitted within twenty-one days or within an extended period not exceeding three months.

3. Burden of Proof Regarding "Reasonable Excuse" for Default:
The court highlighted that under Section 454(5), the prosecution must prove both the default in submitting the statement and the absence of a reasonable excuse for such default. The judgment referred to precedents, including a Full Bench decision of the Delhi High Court, to establish that the prosecution must show that notice was sent, the prescribed time lapsed, no extension was sought, and necessary books were available for inspection. Once these primary facts are proven, the burden shifts to the accused to demonstrate a reasonable excuse.

4. Conviction and Sentencing of the Accused Directors:
Accused Nos. 1, 2, and 4 pleaded guilty, while Accused No. 3 claimed trial. The court, after evaluating the evidence, found that Accused No. 3 had not attended any board meetings since March 28, 1974, and thus had no intimate knowledge of the company's affairs. Consequently, Accused No. 3 was acquitted as the prosecution failed to prove the absence of a reasonable excuse. However, Accused Nos. 1, 2, and 4 were convicted under Section 454(5) and sentenced to three months of simple imprisonment and a fine of Rs. 5,000 each, with an additional three months of imprisonment in default of payment.

Conclusion:
The judgment underscores the stringent requirements under Section 454 of the Companies Act, 1956, for directors to submit a statement of affairs upon a winding-up order. It delineates the burden of proof on the prosecution to establish the default and the absence of a reasonable excuse, shifting the onus to the accused once primary facts are proven. The court's decision to convict and sentence the defaulting directors while acquitting one due to lack of evidence on reasonable excuse highlights the importance of compliance with statutory obligations and the consequences of non-compliance.

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