2007 (12) TMI 285 - HC - Companies Law

Winding up - whether Accused Nos. 3 and 4 are officers and Directors of the company liable to file SoA as required under section 454(1) read with 454(3) of the Act? Held that - In this case, no material is placed before this Court to show that Accused Nos. 3 and 4 had intimate knowledge or in possession of the books of account and papers of the company and that they had reasonable excuse for not filing SoA. The burden was on the prosecution to prove this, but they failed. Indeed as admitted by P.W.1, the complaint was filed only based on Ex. A2 - annual report for 1999, and subsequent annual reports were not verified by OL. Thus this Court is satisfied that the facts alleged against Accused Nos. 3 and 4 do not constitute an offence under section 454(5) of the Act. They are entitled to be exonerated. Company Application No. 254 of 2006 is accordingly dismissed. Accused Nos. 3 and 4 are acquitted under section 255(1) of Criminal Procedure Code, 1973.

Issues Involved:
1. Whether Accused Nos. 3 and 4 are Directors, Managers, Secretaries, or Chief Officers of the company on the relevant date.
2. Whether Accused Nos. 3 and 4 are or have been officers of the company.
3. Whether Accused Nos. 3 and 4 took part in the formation of the company or were employees of the company at any time within one year before the relevant date.
4. Whether Accused Nos. 3 and 4 are liable to file a Statement of Affairs (SoA).

Detailed Analysis:

(i) Whether Accused Nos. 3 and 4 are Directors, Managers, Secretaries, or Chief Officers of the company on the relevant date:
The court examined whether Accused Nos. 3 and 4 were directors or officers at the time of the winding-up order. The evidence showed that Accused No. 3 ceased to be a director on 31-3-2001, and Accused No. 4 ceased on 1-8-2001. Since the winding-up order was passed on 4-5-2005, they were not directors or officers on the relevant date and thus not liable to file the SoA within 21 days from the date of the winding-up order.

(ii) Whether Accused Nos. 3 and 4 are or have been officers of the company:
Sub-section (30) of section 2 of the Act defines an 'officer' as any director, manager, or secretary or any person in accordance with whose directions the Board of directors acts. Accused Nos. 3 and 4 were directors since 3-11-1992 and 21-11-1997, respectively. However, there was no evidence to show that the Board acted under their instructions. Therefore, they do not fall under the category of 'officer' of the company in liquidation.

(iii) Whether Accused Nos. 3 and 4 took part in the formation of the company or were employees of the company at any time within one year before the relevant date:
The company was incorporated on 12-10-1988. Accused Nos. 3 and 4 cannot be said to have taken part in the formation of the company or been employees within one year before the relevant date. Hence, they are not liable under this category.

(iv) Whether Accused Nos. 3 and 4 are liable to file SoA:
The law requires two categories of persons to file SoA. The first category includes Directors, Managers, Secretaries, and Chief Officers on the relevant date, who must file SoA without any direction from the Court or notice from the Official Liquidator (OL). The second category includes those specified in clauses (a) to (d) of sub-section (2) of section 454, who must file SoA only when required by the OL, subject to the Court's direction.

In this case, Ex. A.4 was a show-cause notice, not a request to file SoA. Therefore, the prosecution must fail on this ground alone. Even if Ex. A.4 were considered a request, the law presumes that only those with intimate knowledge of the company's affairs can file SoA. There was no evidence that Accused Nos. 3 and 4 had such knowledge or possession of the company's books and papers. The burden was on the prosecution to prove this, which they failed to do.

Conclusion:
The court concluded that the facts alleged against Accused Nos. 3 and 4 do not constitute an offense under section 454(5) of the Act. Therefore, they are entitled to be exonerated. Company Application No. 254 of 2006 is dismissed, and Accused Nos. 3 and 4 are acquitted under section 255(1) of the Criminal Procedure Code, 1973.

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