2010 (8) TMI 179 - HC - Companies Law

Winding up - Power of Court to access damages against delinquent directors, etc. - Official Liquidator contends that huge loss is on account of failure of the respondents in mismanaging the affairs of the company in liquidation Held that - Official Liquidator in support of his contention except the oral interested testimony of PW.1, there is no other evidence on record. As against this oral evidence of PW.1 respondents in addition to their oral evidence produced Ex.R6 to R8. A reading of Ex.R6 to R8 manifestly makes it clear that the respondent-Directors had taken necessary steps to mitigate the losses of the company in liquidation. Despite the efforts made by respondents they have to incur huge losses on account of trade difficulties. Therefore, from the explanation and the documents produced by the respondents it cannot be said that on account of mismanagement of affairs of the company in liquidation by the respondents, losses are caused. Therefore, respondents are not liable to pay the amounts claimed under the head profit and loss account . Application is partly allowed. The respondents are liable to pay a sum of ₹ 6,53,248 under the head trade debts and another sum of ₹ 16,54,372 under the head loans and advances.

Summary

Issues:
Official Liquidator's claim for payment under different heads - Trade Debtors, Loans & Advances, Miscellaneous expenditure, Profit & Loss Account.

Analysis:

Trade Debtors:
The Official Liquidator claimed Rs. 6,53,248 under trade debts, which the respondents admitted. However, the trade debts were time-barred at the date of winding up. The respondents' explanation of lacking necessary funds to pursue legal action was deemed unacceptable. Hence, the respondents were held liable to pay this amount under the head 'trade debts.'

Loans & Advances:
The respondents admitted paying Rs. 16,04,000 to a company for an industrial shed but failed to recover the amount due to threats. This claim was also time-barred due to the respondents' inaction. As a result, the court found the respondents responsible for paying this amount.

Miscellaneous Expenditure:
The Official Liquidator claimed Rs. 2,52,870 under miscellaneous expenses, alleging lack of proper explanation. However, the respondents clarified that this amount was part of pre-operative expenditures and provided evidence to support their claim. The court accepted the respondents' explanation, stating that there was sufficient evidence to justify the outstanding balance under 'miscellaneous expense,' thus relieving the respondents of liability under this head.

Profit & Loss Account:
A significant amount of Rs. 1,62,20,409 was claimed by the Official Liquidator under the profit and loss account, attributing it to mismanagement by the respondents. While the Official Liquidator's witness testified to mismanagement, the respondents presented evidence (Ex.R6 to R8) demonstrating efforts to mitigate losses due to trade difficulties. The court concluded that the losses incurred were not solely due to mismanagement by the respondents. Therefore, the respondents were not held liable for the amount claimed under the 'profit and loss account.'

In conclusion, the court partially allowed the application, holding the respondents liable to pay Rs. 6,53,248 under trade debts and Rs. 16,54,372 under loans and advances. However, the application was rejected concerning the remaining aspects, as the respondents were not found liable for the miscellaneous expenses and the profit and loss account as claimed by the Official Liquidator.