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2016 (12) TMI 690 - HC - Companies LawMaintainability of application U/s. 543 of the Companies Act, 1956 - misfeasance, malfeasance or breach of trust - application barred by limitation - Held that - The application under Section 543 of the Act of 1956 was admittedly filed on 6-3-2002 following the winding up order dated 20-3-1997-i.e. within five years of the winding up order. Section 543(2) of the Act of 1956, provides for a limitation of five years to file an application under Section 543(1) of the Act of 1956. And Section 458A of the Act of 1956 further excludes a period of one year from the date of winding up order in computing limitation under Section 543(2) thereof. The application under Section 543(1) of the Act of 1956 could have therefore been filed in fact within six years of the winding up order. It was in the instant case thus filed within limitation Winding up - respondents directors Jointly and severally liable to compensate and or to contribute to the applicant company - Held that - Evidence on record establish that the respondent directors thus cannot be held responsible for unaccounted inventory. It was further pointed out that as against the specific case and evidence in support thereof by the respondents, it is not the OL s case that the inventories of the company in liquidation were not available at site when possession of land, building, plant, machinery and raw materials was taken by RIICO on 3-9-1996. Mr. Ajeet Bhandari submitted that none from RIICO has been produced by the OL to prove the said fact to controvert the evidence of Shri Sanjay Jain in regard thereto. The evidence of Dw.1 Mr. Sanjay Jain remained unshaken. And the evidence of the OL s witnesses which included himself and the Chartered Accountant remained confined to accounts reflected in the company s books of account and the Statement of Affairs submitted by the Directors of the Company in liquidation on 28-9-2001. Based thereon inference of liability of the respondent directors was sought to be drawn.In the evidence on record, issues deserve to be decided in favour of the respondent directors and against the Official Liquidator. Allegation of non recovery of an amount towards security deposit, security for Oxygen cylinder and security pledged with the Sales Tax Department - Held that - Ex.A-8 and A-9 filed by the respondent Directors and proved by Dw.1 Mr. Sanjay Jain, indicates that the said amount along with interest aggregating to ₹ 6500/- has been deposited with the OL through receipt No.1349 dated 12-9-2002. Therefore, this issue deserves to be decided against the OL and in favour of the respondents directors. Allegations of misfeasance and/ or breach of trust by respondent directors on the basis of the report by the Chartered Accountant - whether on the evidences of the OL a case against the respondent directors under Section 543(1) of the Act of 1956 is made out - Held that - no specific evidence obtains on record against any of the respondent directors having misappropriated or otherwise having wrongly acted or omitted to act to cause loss to the company in liquidation to their corresponding enrichment/ benefit or otherwise. In fact no allegation of the respondent- directors benefitting personally from the assets of the company has been at all made by the OL. In fact, the Chartered Accountant in his report dated 27-12-2001 which is the basis of this application under Section 543 of the Act of 1956 has stated that no dishonesty in the affairs of the company can be attributed to the directors of the company. Only because the respondents were the Directors of the company as on date of passing of winding up order, it is presumed that they were in possession of the properties and records of the company in liquidation. Non accounting of which to the OL s satisfaction tantamounts to their being fastened with damages/ liability under Section 543(1) of the Act of 1956. That is impermissible. No liability on the rebound is contemplated under Section 543 of the Act of 1956. Concrete positive evidence at the instance of OL and his witnesses is mandatory. Unless that burden has been discharged no liability on the directors can accrue. This has not been done in the instant case. Thus no case of misfeasance, malfeasance or breach of trust is made out against the respondents Sanjay Jain, Abhay Jain and Ajay Jain Ex-Directors of the company M/s. San India Electro Chem Private Limited (in liquidation).
Issues Involved:
1. Joint and several liability for compensation regarding sundry debtors. 2. Joint and several liability for compensation regarding advances to suppliers. 3. Joint and several liability for compensation regarding security deposits. 4. Joint and several liability for compensation regarding inventory. 5. Joint and several liability to restore possession of inventory or its value. 6. Allegations of misfeasance and breach of trust based on the Chartered Accountant's report. 7. Limitation of the application under Section 543 of the Companies Act, 1956. 8. Relief. Issue-wise Detailed Analysis: Issue No. 7 (Limitation): The application under Section 543 of the Companies Act, 1956, was filed within the five-year limitation period from the winding-up order dated 20-3-1997. Section 543(2) provides a five-year limitation, and Section 458A excludes one year from the date of the winding-up order in computing this period. Thus, the application filed on 6-3-2002 was within the permissible time frame. This issue was decided against the respondents and in favor of the Official Liquidator (OL). Issues No. 1, 2, 4, and 5 (Compensation and Inventory): These issues were interconnected and addressed together. The OL argued that the directors failed to recover ?4.67 lacs from sundry debtors and ?9.16 lacs advanced to suppliers, constituting a breach of trust. The respondents contended that RIICO took possession of the factory premises and records on 3-9-1996, preventing them from recovering these amounts. They also argued that the OL should have taken timely possession of the records and initiated recovery steps. The respondents highlighted financial constraints and legal advice against pursuing litigation due to its uncertain success and high costs. The court found the respondents' evidence credible, noting that the OL failed to prove that the inventory was not available when RIICO took possession. Consequently, these issues were decided in favor of the respondents and against the OL. Issue No. 3 (Security Deposits): Regarding the non-recovery of ?3,500/- towards security deposits, the respondents provided evidence that this amount, along with interest totaling ?6,500/-, was deposited with the OL. Therefore, this issue was decided against the OL and in favor of the respondents. Issue No. 6 (Misfeasance and Breach of Trust): The allegations of misfeasance and breach of trust were based solely on the Chartered Accountant's report dated 27-12-2001. The court noted that the report lacked specific instances of wrongdoing or culpable neglect by the directors. Citing precedents, the court emphasized that charges of misfeasance must be specific and supported by concrete evidence. The OL failed to provide such evidence, and the Chartered Accountant's report did not attribute dishonesty to the directors. Consequently, this issue was decided in favor of the respondents and against the OL. Relief: Based on the findings, the application under Section 543 of the Companies Act, 1956, was dismissed.
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