2008 (10) TMI 355 - HC - Companies Law

Winding up - Statement of affairs to be made to Official Liquidator - crime of violation of section 454 of the Act as alleged by the official liquidator - Held that - Finding here show that the official liquidator failed to show that the second accused did not file the statement of affairs for reasonable cause as no documents were entrusted to him. No evidence was adduced to show that default was committed without reasonable cause. In fact second accused adduced evidence to show that immediately on receipt of notice he went to the office of the official liquidator and appraised him that he was not having any documents and was unable to file the statement of affairs. He has also informed the official liquidator in writing. In any event the official liquidator gave evidence to the effect that ex-directors did not hand over any of the documents to the second accused in his enthusiasm to rope in the ex-officers. Hence it is not proved by the official liquidator that the second accused has committed default without reasonable cause. Hence second accused is also entitled to be acquitted and his conviction and sentence is also liable to be set aside. Thus we set aside the conviction and sentence and allow all the company appeals.

Summary

Issues Involved:
1. Conviction under Section 454(5) of the Companies Act, 1956.
2. Validity of notice issued to ex-directors for filing a statement of affairs.
3. Reasonable cause for non-filing of the statement of affairs.

Detailed Analysis:

1. Conviction under Section 454(5) of the Companies Act, 1956:
The appellants were convicted for failing to file a statement of affairs as required under Section 454(5) of the Companies Act, 1956. The first accused was sentenced to six months of imprisonment and a fine of Rs. 20,000, while the second accused and accused Nos. 3, 4, and 5 were sentenced to pay a fine of Rs. 20,000 each. The court needed to determine if the appellants, specifically the ex-directors, were liable to file the statement of affairs and if the official liquidator's notice was valid without a court direction.

2. Validity of notice issued to ex-directors for filing a statement of affairs:
The court examined whether the official liquidator could demand a statement of affairs from ex-directors without a court order. Section 454(2) of the Companies Act, 1956, specifies that ex-officers can be required to submit a statement of affairs only if directed by the court. The court noted that the appellants ceased to be directors about three years before the relevant date, and their resignation was undisputed. The court concluded that the notice issued to the ex-directors without a court direction was illegal, thus invalidating the notice and the subsequent conviction.

3. Reasonable cause for non-filing of the statement of affairs:
For the second accused, who was the managing director at the relevant date, the court examined whether there was a reasonable cause for not filing the statement of affairs. The official liquidator must prove that the default was without reasonable cause. The second accused argued that he did not have the necessary documents to file the statement of affairs and had informed the official liquidator accordingly. The court found that the official liquidator failed to prove that the second accused's default was without reasonable cause. Consequently, the conviction and sentence of the second accused were also set aside.

Conclusion:
The court allowed the appeals and set aside the convictions and sentences of all the accused. The judgment clarified that the official liquidator could not demand a statement of affairs from ex-directors without a court order and highlighted the necessity of proving that any default in filing the statement was without reasonable cause. The court emphasized that this judgment does not bar the official liquidator from taking other legal actions as per the Companies Act.