2014 (2) TMI 1014 - HC - Companies Law

Application for setting aside the Winding up order - Misappropriation of funds - Applicant was in custody while misappropriation done - Held that - The applicant claims himself to be one of the founder directors of the company and its single largest shareholder. If these claims are correct, it was expected of the applicant to be more diligent than what he has been. He was no doubt not made a respondent in the company petition. But there were 7 other directors who were made respondents and they also did not take part in the winding-up proceedings after 02.08.2004. It is difficult to believe that there was lack of communication between the other directors and the applicant and that the applicant was not made aware of the winding-up proceedings. It would have been quite natural for the directors who were respondents in the company petition to have informed the founder director/ single largest shareholder of the company that winding-up proceedings have been instituted against the company. There appears to have been no impediment in the way of the applicant in those 4-5 months. The applicant, in my view, could not have been unaware of the company petition or the proceedings in connection therewith before this Court prior to his being taken into custody in March, 2005; he could have, therefore, taken steps, to oppose the winding-up proceedings. In any case the publication of the citation in the English newspaper The Statesman was made before 12.10.2004 as recorded by this Court in its order passed on 22.03.2005. At that time the applicant was not in custody and, therefore, his claim that he could not have access to newspapers published in Delhi while he was in custody in Lucknow does not hold water. The company was represented before this Court in the winding-up proceedings and up to 02.08.2004 counsel had appeared for the company. It was only thereafter that there was no representation on behalf of the company. The order of provisional winding-up and appointment of provisional liquidator was passed in the present case on 12.10.2004 on which date the applicant was a free person. The publication in the English newspaper i.e. the Statesman was made and a copy of the citation published in the said newspaper was filed in the Court by the OL, as noted by this Court in its order dated 22.03.2005. The applicant thus had ample opportunity to resist the winding-up proceedings. He could not have been unaware of the citation published in the English newspaper or of the order of provisional winging-up and appointment of the provisional liquidator. He was not in custody when these developments took place - diligence shown by the applicant after he was released on bail on 15.07.2007 cannot avail him - application rejected.

Summary

Issues:
1. Setting aside the order directing final winding-up of the company.
2. Recall of the winding-up order and the dismissal of the company petition.
3. Applicant's claim of unawareness of winding-up proceedings.
4. Diligence of the applicant in opposing the winding-up proceedings.
5. Comparison with a similar case from the Gujarat High Court.

Issue 1: Setting aside the order directing final winding-up of the company
The application filed sought setting aside of the order dated 14.09.2005 directing the final winding-up of the company, M/s. Cyber Space Ltd. The winding-up petition was filed by the Registrar of Companies based on misappropriation of funds. The court directed publication of citations in newspapers and appointed the official liquidator as the provisional liquidator. The final winding-up order was passed on 14.09.2005 due to non-appearance of the company, leading to the deletion of the company's name.

Issue 2: Recall of the winding-up order and the dismissal of the company petition
An application was filed by ex-directors seeking recall of the winding-up order. The court initially disposed of the application but later set it aside, leading to a restoration of the application. The applicant claimed to be the single largest equity holder and founding director of the company, which was questioned by the ROC. The court directed the ROC to examine records to verify the applicant's claims.

Issue 3: Applicant's claim of unawareness of winding-up proceedings
The applicant claimed unawareness of the winding-up proceedings due to being in custody from March 2005 to July 2007. The applicant argued that he was not aware of the final winding-up order and sought its recall upon obtaining bail in July 2007. The applicant cited a case from the Gujarat High Court to support the recall of the winding-up order due to lack of awareness during incarceration.

Issue 4: Diligence of the applicant in opposing the winding-up proceedings
The court analyzed the diligence of the applicant in opposing the winding-up proceedings. It was noted that the applicant, being a founder director and largest shareholder, should have been more diligent. The court found it improbable that the applicant was unaware of the proceedings, especially considering the communication among directors and the service of court orders on the company. The court concluded that the applicant failed to display sufficient diligence.

Issue 5: Comparison with a similar case from the Gujarat High Court
The court compared the present case with a similar case from the Gujarat High Court where the managing director was unaware of the winding-up proceedings due to incarceration. The court highlighted the differences in the two cases, emphasizing that the company in the present case was represented in court proceedings, and the applicant had opportunities to resist the winding-up proceedings. The court rejected the application, citing lack of merit and diligence.

The judgment by the Delhi High Court dismissed the application seeking to set aside the final winding-up order of M/s. Cyber Space Ltd. The court found the applicant's claim of unawareness during incarceration unconvincing, emphasizing the applicant's lack of diligence as a founder director and largest shareholder. The court compared the case with a similar one from the Gujarat High Court, highlighting the differences and concluding that the application lacked merit.