2014 (3) TMI 166 - HC - Companies Law

Validity of proceedings initiated - Proceedings initiated much after offense committed - Held that - The other Directors were named as Accused Nos.1 to 3 even though they had retired from the Directorship and stood discharged by orders of this court. It is alleged in the complaint that there was a notice dated 27.11.2002 to the present applicants to produce books, records and papers and all properties of the company in liquidation and that though the notice was acknowledged, there is failure to comply and therefore, were said to have committed an offence punishable under Section 538(1)(c) of the Act. Therefore, the complaint is silent of the subsequent events and subsequent orders passed by this Court which were clearly overlooked in alleging that the present applicants had not complied with the directions issued. Company having stopped its activity in the year 1997, the present applicants being residents of Mumbai, were not in the know of the affairs of the company and in spite of this having got to the attention of the respondents time and again, the present proceedings initiated are unjust and would result in punishing the applicants for no fault of theirs. In any event, even if there was a default in production of all the books and records as claimed by the respondents, in the absence of any further action being taken expeditiously, the prosecution having been launched much after there was alleged non-compliance, the applicants were in a position where they would not be able to comply having regard to the sheer lapse of time and the applicants not being in possession of any such documents or records - Decided in favour of appellants.

Summary

Issues:
1. Non-compliance with Section 454 of the Companies Act, 1956.
2. Allegations of offenses under Section 538(1)(c) of the Companies Act.
3. Delay in filing the statement of affairs.

Analysis:
1. The ex-Directors of a company in liquidation filed an application due to non-compliance with Section 454 of the Companies Act, 1956. The company was ordered to be wound up, and the Official Liquidator was appointed. The applicants, being permanent residents of Mumbai, claimed they were not actively involved in the company's affairs since its cessation in 1997. They sought time to furnish documents, which they eventually did, but faced allegations of offenses for non-compliance. The court acknowledged their efforts and allowed a delay in filing the statement of affairs, dismissing a related application as infructuous.

2. Despite the above, a complaint was filed against the ex-Directors under Section 538(1)(c) of the Companies Act. The complaint alleged non-compliance with producing company documents, leading to accusations of offenses. However, the ex-Directors argued that subsequent events and court orders were overlooked in the complaint. They contended that the proceedings were unjust, as they were unaware of the company's affairs and lacked possession of relevant records due to the company's inactivity since 1997. The court noted the delay in prosecution and stayed further proceedings against the applicants.

3. Additionally, the ex-Directors faced a delay in filing the statement of affairs, for which they sought condonation. The court allowed the delay, considering the reasons presented by the applicants. Despite their efforts to rectify the situation, they still faced legal actions, highlighting the complexities and challenges in dealing with compliance issues and legal proceedings in the context of company liquidation.