2006 (3) TMI 348 - HC - Companies Law

Summary

Issues: Application under section 543(1) of the Companies Act, 1956 for contribution to the company in liquidation.

Detailed Analysis:
1. The official liquidator filed an application seeking action under section 543(1) of the Companies Act, 1956 against the respondents for a contribution of Rs. 5,77,750 to the company in liquidation.

2. The company had a history of suffering losses, with the net worth eroded significantly, and had settled its secured and banking creditors before liquidation. The remaining creditors were sister companies and outsiders.

3. The respondents argued that certain claims were time-barred or not made before the official liquidator. They also highlighted a consent letter from a sister concern confirming no claims. The official liquidator's report indicated losses impacting the company's net worth, justifying action under sections 542 and 543 of the Companies Act, 1956.

4. The respondents cited Supreme Court decisions emphasizing the need for the official liquidator to prove fraudulent acts causing loss. They argued that without specific allegations of fraud, the proceedings were unsustainable. Reference was made to various case laws supporting this position.

5. The official liquidator's statement indicated that the losses were due to business activities, not fraudulent acts. The respondents claimed that many claims were time-barred and disputed specific misfeasance claims due to lack of knowledge or customer non-payment not constituting misfeasance.

6. The respondents contended that non-payment by customers did not amount to misfeasance under the Act. They also noted that no customer had made a claim for the facility offered by the company in liquidation.

7. The court reviewed the respondents' affidavit and relevant Supreme Court decisions, emphasizing the burden of proving misfeasance or non-feasance rested on the official liquidator, requiring strong evidence beyond public examination of directors and submitted documents.

8. Due to the lack of strong evidence of misfeasance, the court found it difficult to impose fines on the respondents, especially since many claims had been settled, and no claims were made before the official liquidator despite the petition's pendency since 1997.

9. Consequently, considering the lack of compelling evidence, the court dismissed the application filed by the official liquidator.