2009 (2) TMI 467 - HC - Companies Law

Winding up - Statement of affairs to be made to Official Liquidator - Held that - The date of winding up or the order of appointment of provisional liquidator shall first be ascertained. Any person who shall answer the description of a director coming within the definition of section 2(13) of the Companies Act and the classes of persons as detailed under section 454(2), clauses (a) to (d), shall be answerable to give the statement of affairs of the company. Production of copy of resignation letter or entries in Form No. 32 shall not be conclusive evidence of whether a person was a director or not at the relevant time. It would be a matter of proof of fact that the official liquidator shall consider before lodging a complaint and at times, may itself be a subject of adjudication at the trial. The liability of such director shall be within 21 days from the relevant date or within such time not exceeding three months from the date as the official liquidator or the court may grant for special reasons. The action of the official liquidator shall be merely subject to the directions of the court and will require no prior sanction to initiate action. If there is a default on the part of the person liable to give the statement of affairs under the above circumstances within time, the official liquidator is entitled to assume that there is no reasonable excuse and by making express statement that there was no reasonable excuse to make such default, he could make a complaint to the court for action for the offence under section 454(5) by resorting to the provisions of section 454(5A).

Issues Involved:
1. Extent of power of the company court to direct the official liquidator.
2. Compliance with the duty to provide the statement of affairs of the company-in-liquidation.
3. Liability of directors for non-compliance.
4. Definition and scope of "director" under the Companies Act.
5. Interpretation of "without reasonable excuse" and burden of proof.
6. Immunity under specific enactments.
7. Requirement of court's prior approval for official liquidator's actions.

Detailed Analysis:

I. Extent of Power of the Company Court:
The judgment addresses the extent of the company court's power to direct the official liquidator in cases of perceived deliberate non-compliance with the duty to provide the statement of affairs of the company-in-liquidation. The court aims to lay down specific guidelines for the official liquidator to follow before taking action under section 454(5) and (5A) of the Companies Act, 1956.

II. Compliance with the Duty to Provide the Statement of Affairs:
Section 454 of the Companies Act mandates that a statement of affairs must be submitted to the official liquidator within 21 days from the date of the winding-up order or the appointment of the provisional liquidator. The statement must include details such as the company's assets, debts, liabilities, creditors, and other relevant information. Non-compliance without reasonable excuse is punishable by imprisonment or fine.

III. Liability of Directors for Non-Compliance:
The court discusses the liability of various categories of directors, including ex-directors, nominee directors, and those who have ceased to be directors but whose cessation was not communicated to the Registrar of Companies. The court emphasizes that the relevant date for determining liability is the date of the winding-up order or the appointment of the provisional liquidator.

IV. Definition and Scope of "Director":
The definition of "director" under section 2(13) of the Companies Act is inclusive and elastic, covering any person occupying the position of director by whatever name called. The court rejects the argument that nominee directors or ex-directors are automatically exempt from liability, emphasizing that the duty to submit the statement of affairs applies to all persons acquainted with the company's affairs.

V. Interpretation of "Without Reasonable Excuse" and Burden of Proof:
The court clarifies that the burden of proof initially lies with the prosecuting agency to show non-compliance with the requirement to submit the statement of affairs. Once this is established, the burden shifts to the accused to prove that they had a reasonable excuse for the default. The court references several cases to illustrate the application of this principle, including the Full Bench decision of the Delhi High Court in Security & Finance (P.) Ltd., which states that the onus shifts to the accused once the prosecution shows non-compliance.

VI. Immunity Under Specific Enactments:
The court examines the immunity provided under specific enactments, such as section 41A of the State Financial Corporations Act, 1951, which protects actions taken in good faith by persons appointed as directors by financial corporations. The court distinguishes between acts and omissions, noting that immunity for acts done in good faith does not necessarily cover omissions, such as the failure to submit the statement of affairs.

VII. Requirement of Court's Prior Approval for Official Liquidator's Actions:
The court addresses the interpretation of the phrase "subject to the directions of the court" in section 454(2) of the Companies Act. It concludes that this phrase does not mean "prior approval" and that the official liquidator does not need prior sanction from the company court before lodging a complaint for an offence under section 454(5).

Disposition:
The court sets out the following principles for dealing with pending cases:
1. Ascertain the date of winding up or the appointment of the provisional liquidator.
2. Determine if the person fits the definition of a director under section 2(13) and the categories under section 454(2).
3. Consider resignation letters or entries in Form No. 32 as evidence, but not conclusive proof.
4. Ensure the statement of affairs is submitted within the prescribed time.
5. Assume no reasonable excuse for default unless proven otherwise, allowing the official liquidator to lodge a complaint for action under section 454(5A).

All pending applications will be decided based on these principles.

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