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2016 (8) TMI 331 - HC - Companies LawWinding up order - Whether the respondents though being aware of passing of winding up order dated 17-10-2003 are guilty of not handing over the possession of the record/ books of account to the OL on passing of the order of winding up thereby intentionally stalling the winding up proceedings and causing loss to the company s creditors? - Held that - From the evidence on record it indeed transpires that subsequent to winding up order dated 27-10-2003 books of accounts of the respondent company were not handed over to the Official Liquidator. The counsel for the Official Liquidator has submitted that it was so done intentionally with the object to stall the winding up proceedings and cause loss to the creditors of the company in liquidation. Counsel for the respondent directors has submitted that the record of the company in liquidation were lodged at the registered office/ factory premises SP-9-B Khushkhera Industrial Area Alwar, which was taken over without notice by RIICO in exercise of its powers under Section 29 of the State Financial Corporation Act, 1951 on 25-11-2003. It is not in dispute that the registered office of the company in liquidation was the factory premises i.e. SP-9-B Khushkhera Industrial Area Alwar, where the books of accounts and other record of the company were to be kept as required by law. In the circumstances it is not incredible, as stated by the respondent directors that the books of accounts of the respondent company were at the registered office of the company. In the circumstances it cannot be discounted altogether that the respondent directors did not have the possession of the books of accounts and other record subsequent to possession being taken over by RIICO on 25-11-2003. As far as the issue of non filing of statutory returns by the respondent directors qua affairs of the company is concerned, I am of the considered view that this deficiency would be covered under Section 541 of the Act of 1956 and not be a matter of enquiry under Section 543 of the Act of 1956, which is in nature tortuous liability of the directors responsible for misfeasance, malfeasance or breach of trust. Consequently issues 1 to 4 are decided against the official liquidator. Guilty of retaining the current assets and the surplus amount belonging to the company thereby causing breach of trust and loss to the company - Held that - From the evidence on record it is apparent that allegation against the respondent directors with regard to retaining current assets of ₹ 27,70,972.57 and surplus amount of ₹ 33,68,471/- aggregating to ₹ 61,39,443.57 are based on the balance sheet of 31-3-1997 without reckoning for working of the company now in liquidation upto 1-10-1998. The Official Liquidator failed to discharge the burden on this count, more particularly with regard to specific action of the two directors. Evidence on record reflects that no enquiry from the respondent directors was made either by the Official Liquidator or the Chartered Accountant appointed by him only deductive inferences from the basis of allegations insufficient for discharge of the burden of proof on the Official Liquidator with reference to this issue are sought to be made. The liability under Section 543 of the Act of 1956 is inter-alia quasi criminal and thus one charged of misfeasance, malfeasance and/ or breach of trust is entitled to all protection and safeguards/ rights as in criminal jurisprudence including the benefit of doubt. Clear cut proof of the allegations made is required and tortuous liability under Section 543 cannot be based on surmises and conjectures alone. Whether RIICO had taken over the possession of the fixed assets only, not the books of accounts and records of the Company ? - Held that - A wholistic reading of the evidence on record with regard to taking over assets of the company in liquidation by RIICO indicates that assets had been taken over by RIICO in absence of the respondent directors or their nominee, and the inventory was also drawn in their absence. Further this fact is also recorded in para No.10 of the report of the Chartered Accountant dated 20-9-2008. Evidence on record indicates that the Official Liquidator has not produced any witness from RIICO to support the contention of taking over possession of the assets of the company in liquidation by RIICO on 25-11-2003 to prove the fact that nothing except the fixed assets was available or found by RIICO at the relevant time. Consequently the issue No.6 is also decided against the Official Liquidator. Whether the application filed under Section 543 by the O.L. is maintainable in the absence of any specific allegations against the Ex-Directors/respondents ? - Held that - No case of misfeasance, malfeasance or breach of trust is made out against the respondents Pawan Kumar Lath and Bimal Kumar Lath Ex-Directors of the company in liquidation. Consequently issue No.7 is decided in favour of the respondent directors and against the Official Liquidator.
Issues Involved:
1. Non-handing over of records/books of account to the Official Liquidator (OL). 2. Removal of current assets, account books, and records from the factory premises. 3. Offence under Sections 541 and 543 of the Companies Act, 1956 for not maintaining books of accounts and non-filing of balance sheets and annual returns. 4. Loss to the company due to non-submission of the statement of affairs and non-provision of account books. 5. Retention of current assets and surplus amount, causing breach of trust and loss to the company. 6. Whether RIICO took over only fixed assets and not the books of accounts and records. 7. Maintainability of the application under Section 543 in the absence of specific allegations. Detailed Analysis: Issues No. 1 to 4: These issues were addressed jointly. The evidence indicated that subsequent to the winding-up order dated 27-10-2003, the books of accounts were not handed over to the OL. The respondents argued that the records were at the factory premises, which RIICO took over without notice. The court found it plausible that the books were at the registered office and were taken by RIICO. The non-filing of statutory returns was deemed to fall under Section 541, not Section 543, which deals with tortious liability for misfeasance or breach of trust. Consequently, issues 1 to 4 were decided against the OL. Issue No. 5: The allegation of retaining ?61,39,443.57 was based on the balance sheet of 31-3-1997 without considering the company's operations until 1-10-1998. The OL failed to provide specific evidence of the directors' actions. The court noted that the liability under Section 543 is quasi-criminal and requires clear proof. The issue was decided against the OL. Issue No. 6: The evidence suggested that RIICO took over the assets without the presence of the respondent directors. The OL did not produce any witness from RIICO to support the claim that only fixed assets were taken. Consequently, the issue was decided against the OL. Issue No. 7: Section 543 necessitates specific allegations and proof of misfeasance or breach of trust. The case against the directors was based on a report by a Chartered Accountant, which relied on documents from the Registrar of Companies and did not consider the company's operations until 1-10-1998. No specific evidence of misappropriation or personal gain by the directors was presented. The court referenced several judgments emphasizing the need for specific and detailed allegations. Consequently, the issue was decided in favor of the respondent directors. Conclusion: The application under Section 543 of the Companies Act, 1956, was dismissed.
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