2010 (3) TMI 676 - HC - Companies Law

Whetehr the business and income for the years 2004-05 and 2005-06 was nil cannot take away the circumstances which were in favour of issuing a direction for investigation? Held that - The order of the learned Single Judge issuing a direction to the Official Liquidator to investigate into the affairs of the appellant-company with reference to the object of that company and the transactions which have taken place from the date of its incorporation, namely, 28-5-2004, till the date of the order and also a direction to the Official Liquidator to proceed with the investigation after giving notice to the directors of the appellant-company including the three ex-directors of the company under winding up is affirmed and the Official Liquidator is directed to file a report within three months from the date of this order.

Issues Involved:
1. Fraudulent constitution of a new company by ex-directors.
2. Liability under Section 536 of the Companies Act, 1956.
3. Misfeasance by ex-directors.
4. Necessity to lift the corporate veil.
5. Investigation into the affairs of the appellant-company.
6. Interim injunction against alienation of assets.

Issue-wise Detailed Analysis:

1. Fraudulent Constitution of a New Company by Ex-Directors:
The petitioning creditor alleged that the ex-directors of the company under liquidation fraudulently constituted a new company, M/s. Scanwell Logistics (P.) Ltd., during the pendency of the company petition. The new company was formed on 28-5-2004, in the same premises as the company under liquidation. The court noted that three of the directors from the company under liquidation became directors of the new company, raising suspicion of fraudulent intent.

2. Liability under Section 536 of the Companies Act, 1956:
The petitioning creditor claimed that the ex-directors were liable under Section 536 of the Companies Act, 1956, for transferring the property and business of the company under liquidation to the new company. The court found that the transfer of assets, including a rental advance of Rs. 3,50,000, to the new company indicated potential misfeasance and fraudulent activity.

3. Misfeasance by Ex-Directors:
The conduct of the ex-directors was scrutinized for misfeasance. The Official Liquidator's report highlighted discrepancies in the statement of affairs filed by the ex-directors, including missing bank balances and unaccounted cash. The court noted that these discrepancies suggested mismanagement and maladministration, warranting further investigation.

4. Necessity to Lift the Corporate Veil:
The court emphasized the need to lift the corporate veil to uncover potential fraud. Citing the Supreme Court's decision in Delhi Development Authority v. Skipper Construction Co. (P.) Ltd., the court stated that the corporate character should not be used to commit illegalities or defraud others. The court found sufficient grounds to investigate the new company's affairs to determine if it was constituted with a fraudulent design.

5. Investigation into the Affairs of the Appellant-Company:
The court directed the Official Liquidator to investigate the affairs of M/s. Scanwell Logistics (P.) Ltd., focusing on the company's objectives and transactions from its incorporation on 28-5-2004. The investigation was deemed necessary to pass final orders on the applications. The court clarified that the investigation order was interim, not final, and aimed at uncovering the truth behind the new company's formation and operations.

6. Interim Injunction Against Alienation of Assets:
The petitioning creditor sought an interim injunction to prevent the appellant-company from alienating or disposing of its assets pending the investigation. The court upheld the need for such an injunction to protect the interests of the creditors and ensure that the assets remained available for potential recovery.

Separate Judgments Delivered:
The court addressed the appellant's contentions, including the scope of the investigation and the necessity of involving the petitioning creditor. The court affirmed the investigation's scope, extending it to the date of the order, to fully assess potential fraud. However, the court set aside the part of the order requiring the petitioning creditor's involvement during the investigation, deeming it unnecessary.

Conclusion:
The court dismissed the appeals, affirming the order for the Official Liquidator to investigate the appellant-company's affairs and transactions. The investigation aimed to uncover any fraudulent activities and ensure justice for the creditors. The court directed the Official Liquidator to file a report within three months, while dismissing the connected miscellaneous petitions.

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