2016 (7) TMI 767 - HC - Companies Law

Default of Director of the company in liquidation - non filing of statement of accounts of the company in liquidation within 21 days of the winding up order - Held that - The respondents, the ex-directors of the company in liquidation are guilty of breach of their obligation under Section 454 of the Act of 1956 to file a statement of accounts of the company in liquidation within 21 days of the winding up order dated 17- 10-2003. The default is intentional or in any event for reason of their recklessness negligence and disregard of the statutory provisions of law. The defence set up by the respondents for not filing a full and complete statement of affairs for 12 years is wholly untenable. The respondents did not have a reasonable excuse to do so. No plausible reason therefor obtains in the facts of the case with the respondents. And when the compliance was sought to be purportedly made belatedly in January, 2016 and on 5-2-2016 it was defective and incomplete, and hence no compliance in the eye of law. The respondents having been found guilty of contravention of Section 454 of the Act of 1956, the question of sentence remains. The respondents have been in default/ non compliant with the provisions of section 454 of the Act of 1956 for a period over 4380 days from the date of winding up order dated 17-10-2003. Section 454(5) of the Act of 1956 provides for a fine of ₹ 1000/- per day till the currency of the default. By a simple arithmetical calculation the amount of fine comes to ₹ 43,80,000/-. But that is the maximum fine. In the facts of the case, it is of the considered view that the ends of justice would be served in holding the respondents directors Pawan Kumar Lath and Bimal Kumar Lath of the company in liquidation being liable to a fine of ₹ 2 lacs, jointly/ severally as punishment for the reckless contravention of Section 454(3) of the Act of 1956. The said amount ₹ 2 lacs fine be deposited in the Common Pool Fund with the Official Liquidator within a period of six months from today. However, in the event of non payment of the amount of fine as aforesaid, the respondents directors of the company in liquidation shall be liable, in the alternative, to serve simple imprisonment for a period of six months.

Summary

Issues Involved:
1. Breach of statutory obligation under Section 454 of the Companies Act, 1956.
2. Reasonable excuse for non-compliance.
3. Determination of appropriate punishment.

Issue-wise Detailed Analysis:

1. Breach of statutory obligation under Section 454 of the Companies Act, 1956:
The court examined the failure of the respondents, who were promoter directors of the company in liquidation, to file the statement of affairs within the mandated twenty-one days following the winding-up order dated 17-10-2003. Despite being legally obliged under Section 454(1) and 454(3) of the Companies Act, 1956, the respondents did not file the statement of affairs, nor did they seek an extension or exemption within the permissible timeframe. The Official Liquidator highlighted that an incomplete statement was only filed in January 2015 and a revised yet still incomplete statement on 5-2-2016, which did not constitute compliance. The court found the respondents in breach of their statutory obligation for over 12 years (4410 days).

2. Reasonable excuse for non-compliance:
The respondents argued that they could not file the statement of affairs because the company's records were in the possession of RIICO after it took over the factory premises on 25-11-2003. They also cited a dispute with their Chartered Accountant, who allegedly did not cooperate due to a connection with the petitioner in the winding-up petition. However, the court found these defences contradictory and unsupported by evidence. RIICO confirmed that no records or accounts were taken over during the possession of the factory premises. The court noted that it was implausible for the respondents to leave the records unattended in a closed factory for over five years. The court concluded that the respondents did not have a "reasonable excuse" for their non-compliance.

3. Determination of appropriate punishment:
Given the respondents' intentional or reckless negligence and disregard for statutory provisions, the court found them guilty under Section 454(5) of the Companies Act, 1956. The court emphasized the importance of filing the statement of affairs for the orderly dissolution of the company and the facilitation of the winding-up process. The respondents' prolonged non-compliance obstructed the Official Liquidator's duties and was detrimental to public interest. The court considered the severity of the default, which continued for over 4380 days, and determined that imprisonment would be harsh. Instead, the court imposed a fine of Rs. 2 lakhs, to be deposited within six months. Failure to pay the fine would result in six months of simple imprisonment.

Conclusion:
The application under Section 454 of the Companies Act, 1956, was allowed. The respondents were held liable for a fine of Rs. 2 lakhs, payable jointly and severally, with an alternative sentence of six months' simple imprisonment for non-payment.