2005 (8) TMI 378 - HC - Companies Law

Summary

Issues Involved:
1. Transfer of funds for reimbursement of security expenses.
2. Payment of ongoing security expenses.
3. Theft at the Baroda Unit and subsequent actions.
4. Role and performance of the security agency.
5. Actions and responsibilities of the Official Liquidator (O.L.).
6. Participation and responsibilities of secured creditors.

Detailed Analysis:

1. Transfer of Funds for Reimbursement of Security Expenses
The Official Liquidator (O.L.) sought permission to transfer Rs.1,32,38,600 from the sale proceeds of the company's assets to the "Company Paid Staff Salary Reserve Funds A/c." for reimbursement of security expenses incurred up to November 2003. The O.L. also requested permission to encash Fixed Deposit Receipts (FDRs) to facilitate this transfer and to continue paying security expenses from the sale proceeds until all assets were sold.

2. Payment of Ongoing Security Expenses
The O.L. requested permission to pay security expenses from December 2003 onwards from the sale proceeds of the company's assets. The Court noted that the O.L. had sufficient funds in the company's account following the sale of assets worth Rs.24,84,00,000 from the Ahmedabad Unit.

3. Theft at the Baroda Unit and Subsequent Actions
The General Secretary of the Calico Fibre Employee's Association highlighted a theft at the Baroda Unit on 15-6-2003, involving three security watchmen. The O.L. was directed to investigate the theft, including reinventory of assets, and report the findings. The O.L. assigned the reinventory task to a valuer and communicated with secured creditors and the police for further investigation. The reinventory revealed significant missing items, valued at approximately Rs.3.39 crores.

4. Role and Performance of the Security Agency
The Court scrutinized the performance of the security agency, Industrial Personnel & Security Services, which continued to provide services despite the theft. Payments to the agency were stopped from June 2003. The Court directed the O.L. to consider replacing the agency, resulting in the appointment of M/s. National Security Force at the Baroda Unit. The Court also ordered that no payments be made to the previous agency without further orders and required the new agency to provide an undertaking regarding their responsibilities.

5. Actions and Responsibilities of the Official Liquidator (O.L.)
The Court criticized the O.L. for not promptly reporting the theft and for continuing payments to the security agency despite the theft. The O.L. was directed to provide detailed records of security guard deployment and to initiate recovery proceedings for the loss suffered by the company. The Court emphasized the need for a thorough investigation into the O.L.'s actions over the past ten years, aligning with an ongoing inquiry ordered in another case (OLR No. 61 of 2005).

6. Participation and Responsibilities of Secured Creditors
The Court expressed concern over the lack of active participation by secured creditors in safeguarding the company's assets. The creditors' indifferent approach contributed to inadequate oversight of the O.L.'s actions. The Court stressed the importance of their involvement in protecting and preserving the company's assets.

Conclusion:
The Court permitted the transfer of Rs.1,32,38,600 from the sale proceeds to the CPSSRF A/c for reimbursement of security expenses. The O.L. was directed to ensure detailed records and explanations for the theft and to initiate recovery proceedings. Payments to the previous security agency were halted pending further investigation, and a new security agency was appointed with specific conditions. The Court highlighted the need for a comprehensive inquiry into the O.L.'s conduct and the active involvement of secured creditors in asset protection.