2024 (6) TMI 715 - HC - Companies Law

Winding up of company - Prosecution of the Ex-Directors - guilty of fraudulent concealment and have misappropriated the funds - Failure to discolse sale consideration in the company's bank accounts - Section 433(e) and 435 of the Companies Act, 1956 - HELD THAT - It is categorically brought out that the true and correct information had not been supplied by respondent Nos. 1 to 4 during the course of winding up proceedings by the Official Liquidator in as much as the aspect of the sale and its consideration, that had been deposited in the Bank of Rajasthan, Karol Bagh Branch, New Delhi, was not disclosed. All said and done, it stares on the face of the record that in so far as the property in question is concerned, third party rights have already been created much before the initiation of the instant winding up proceedings. There is no iota of allegations by the Official Liquidator that there was any collusion between the Ex-Directors of the company (in liquidation) and respondent No.5 and/or for that matter, the respondent Nos.6 and 7 in any manner and by all means, that they bonafidely purchased the property in question when there was pending no winding up petition. It is directed that the aforesaid respondent Nos. 1 to 4 are held accountable and liable to pay Rs. 3,60,000/- with penal interest @ 12% per annum from the date of execution of the Sale Deed i.e. 10.03.1999, jointly and severally, which shall be paid to the Official Liquidator within 30 days from today. Application disposed off.

Issues:
1. Seeking directions against Ex-Management/Directors of respondent company in liquidation.
2. Winding up petition under Sections 433(e) and 435 of the Companies Act, 1956.
3. Status report filed by Official Liquidator regarding Ex-Directors and sale of company property.
4. Application under Sections 531-A, 536, 537, and 538 of the Act and Rule 9 of the Companies (Court) Rules, 1959.
5. Prosecution of Ex-Directors/Management under Section 538 of the Act.
6. Sale of property without reflecting sale consideration in company accounts.
7. Discrepancies in disclosure of sale consideration by Ex-Directors.
8. Creation of third-party rights before initiation of winding up proceedings.
9. Lack of collusion between Ex-Directors and property purchasers.
10. Ex-Directors guilty of fraudulent concealment and misappropriation of funds.
11. Liability of Ex-Directors to pay Rs. 3,60,000 with penal interest under Section 538 of the Act.

Analysis:

1. The applications sought directions against the Ex-Management/Directors of the respondent company in liquidation, along with a winding-up petition under Sections 433(e) and 435 of the Companies Act, 1956. The appointment of a Provisional Liquidator was ordered, leading to the final liquidation of the company.

2. The Official Liquidator filed a status report identifying the Ex-Directors and highlighting discrepancies in the sale of company property. Subsequent applications were made under Sections 531-A, 536, 537, and 538 of the Act, seeking action against the Ex-Directors for non-disclosure of sale consideration and mismanagement.

3. The Official Liquidator uncovered that the sale of the property was not reflected in company accounts, leading to further applications for prosecution under Section 538 of the Act. Respondent Nos. 5, 6, and 7 were involved in subsequent sales of the property, complicating the financial transactions.

4. Despite the creation of third-party rights before the winding-up proceedings, the Ex-Directors were found guilty of fraudulent concealment and misappropriation of funds. The lack of collusion between the Ex-Directors and property purchasers did not absolve the Ex-Directors of their liabilities.

5. The judgment held the Ex-Directors accountable and liable to pay Rs. 3,60,000 with penal interest, failing which prosecution under Section 538 of the Companies Act would be initiated. The legal consequences were outlined for the Ex-Directors' actions during the company's liquidation process.

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