1961 (9) TMI 100 - HC - Companies Law

Summary

Issues Involved:
1. Accountability for the stores consumed during the accounting year 1946-47.
2. Accountability for the difference between the closing balance of the general ledger dated 30-9-48 and the opening balance of the general ledger dated 1-10-48.
3. Accountability for the difference in the last entry dated 21-7-49 in the store purchase account and the corresponding entry in the balance-sheet dated 31-7-49.
4. Appropriation of the sum of Rs. 15,000/- said to have been paid as commission for the purchase of Vijai Lakshmi Sugar Corporation.
5. Liability to pay the sum of Rs. 15,000/- on account of the price of stores said to have been purchased on 16-6-47 from the Vijai Lakshmi Sugar Corporation.
6. Purchases made through Messrs. Mathura Prasad and Sons and Messrs. Mathura Prasad and Company.
7. Ownership of the aforesaid two firms by the ex-directors and their pecuniary liability towards the Company.
8. Conduct of the ex-directors in not issuing share-capital and providing funds to the Company by advancing loans.
9. Failure of the liquidators to make out an inventory of stores and value them properly when they took over charge of the Mill.
10. Whether the petition is time-barred.
11. Non-joinder of necessary parties in the petition.
12. Mala fide nature of the petition.
13. Amount, if any, the ex-directors are liable to pay.

Detailed Analysis:

Issue 1: Accountability for the stores consumed during the accounting year 1946-47
The liquidators alleged that there was no record in the account books and registers of the company to show what happened to stores worth Rs. 2,02,082/3/-. The ex-directors argued that all stores consumed were issued after being entered in the stores Issue Register, but the Store-keeper had not entered the values of some of the stores. The total value of the stores consumed was estimated and entered as Rs. 2,02,082/3/-, which was checked and found correct by the auditor. The court found no material on record to hold that these items were misappropriated, retained, or misapplied by any of the directors.

Issue 2: Accountability for the difference between the closing balance of the general ledger dated 30-9-48 and the opening balance of the general ledger dated 1-10-48
The liquidators contended that there was a difference of Rs. 1,75,508/-/3 between the closing balance on 30th September 1948 and the opening balance on 1st October 1948, suggesting misappropriation. The ex-directors explained that the figure Rs. 3,52,717/14/6 represented the total value of consumed and unconsumed stores during the accounting year 1947-48, and the balance carried forward was correctly shown as Rs. 1,77,209/14/3. The court found no evidence to prove misappropriation or misapplication of this amount.

Issue 3: Accountability for the difference in the last entry dated 21-7-49 in the store purchase account and the corresponding entry in the balance-sheet dated 31-7-49
The liquidators alleged that the value of the stores was reduced by Rs. 2,72,466/14/3 during ten days on the eve of the winding up of the company, with no explanation provided. The ex-directors claimed that Rs. 2,72,466/14/3 was the value of the stores consumed during the whole year. The court found no evidence to support the liquidators' claim of misappropriation.

Issue 4: Appropriation of the sum of Rs. 15,000/- said to have been paid as commission for the purchase of Vijai Lakshmi Sugar Corporation
The liquidators alleged that this amount was not paid and had been misappropriated by the former directors. The ex-directors provided evidence that the amount was paid to Sri Ratten Chand and Sri Lajja Ram, which was corroborated by the sales accountant of the Vijai Lakshmi Sugar Mills Ltd. The court found no material on record to hold that these items were misappropriated.

Issue 5: Liability to pay the sum of Rs. 15,000/- on account of the price of stores said to have been purchased on 16-6-47 from the Vijai Lakshmi Sugar Corporation
The liquidators alleged that this amount had either not been spent or the stores received for the amount had been misappropriated. The ex-directors explained that the amount was paid to Messrs. Vijai Sugar Corporation Ltd. on account of the price of the stores. The court found no evidence to support the liquidators' claim of misappropriation.

Issue 6: Purchases made through Messrs. Mathura Prasad and Sons and Messrs. Mathura Prasad and Company
The liquidators suggested that the directors purchased all the stores through these two firms, which they owned, and mismanaged the affairs of the company. The ex-directors conceded that some stores were purchased through Seth Mathura Prasad and Co., but argued that it was done as the firm advanced loans to the company without interest. This issue was not pressed before the court and was decided in favor of the respondents.

Issue 7: Ownership of the aforesaid two firms by the ex-directors and their pecuniary liability towards the Company
This issue was also not pressed before the court and was decided in favor of the respondents.

Issue 8: Conduct of the ex-directors in not issuing share-capital and providing funds to the Company by advancing loans
This issue was not pressed before the court and was decided in favor of the respondents.

Issue 9: Failure of the liquidators to make out an inventory of stores and value them properly when they took over charge of the Mill
The failure of the liquidators to prepare an inventory or value the stores properly affected the ability to prove that any loss had been suffered by the company due to the improper valuation of stores during the disputed years.

Issue 10: Whether the petition is time-barred
The court held that the limitation for an application under Section 235 is three years from the date of the first appointment of the liquidators. Since the application was filed within three years of the liquidators' appointment, it was not time-barred.

Issue 11: Non-joinder of necessary parties in the petition
This issue was not pressed before the court and was decided in favor of the respondents.

Issue 12: Mala fide nature of the petition
The court found no materials on record to show that the application was made with any ulterior motive. The liquidator could, in good faith, think that the respondents were responsible due to the unsatisfactory explanation provided by the directors in their case under Section 195.

Issue 13: Amount, if any, the ex-directors are liable to pay
The court concluded that the respondents could not be held liable to pay any amount to the company as no evidence was found to support the claims of misappropriation, misapplication, or breach of trust. The application was dismissed with costs.

Conclusion:
The court dismissed the application, finding no evidence to hold the ex-directors liable for misappropriation, misapplication, or breach of trust regarding the company's stores and funds. The petition was not time-barred, and no mala fide intent was proven. The liquidators' failure to prepare an inventory or value the stores properly affected the ability to establish any loss to the company.