9911796707
TMI Blog1980 (6) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... various kinds, and was supplying paper to the company in liquidation for use in their printing and publishing business. The respondents were obtaining "credit purchases" from the applicant. The company had ceased to carry on business since 1970. Even after the commencement of the winding-up in January, 1973, the company continued to purchase paper on credit without, disclosing the above state of affairs. Obtaining credit facilities after stoppage of business and even after commencement of winding-up, without informing the applicant of the true situation, amounted to misrepresentation and fraud. Supplies were obtained with intent to defraud. Over Rs. 43,000 are due to the applicant as per its accounts regularly kept in the course of business, and the respondents are personally liable for this debt of the company, under section 542. A representative of M/s. Paper Mart, Trichur, who are the agents of the applicant and through whom supplies were made to the company, has been examined as P.W. I. P.W. 2 is a director of the applicant-company. Exhibits. A-1 to A-2 are the books of accounts and other connected documents. The respondents have adduced no evidence. Their case is that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not totally disregard the rule relating to corporate personality because the effect of an order by the court under section 542 is not to make the directors and others personally liable to the creditor who has been defrauded. The amount determined is to be paid to the liquidator for being applied along with the other funds of the company, in paying all the creditors rate-ably. The creditors who move the court and obtain a favourable order have no preferential claim to the amounts involved. So, to state the law, is not to ignore the decision of the majority In re Cyona Distributors Ltd. [1967] 1 All ER 281 (CA), where it was held that the court would have power to direct payment to the applicant himself, but only to recognise the dissent of Russel L.J. that the current of judicial opinion has always been that all such sums should go to the liquidator. The majority's observation was obiter as it was not a case where fraudulent trading was established; and the observations themselves only recognise a discretion in the court, and not any preferential right the applicant-creditor could seek to enforce. It will be useful to compare the provisions of section 542 with those of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a debit of Rs. 7,760.90 towards excise duty, the balance due from the company at the end of the year was thus Rs. 41,877.90. No supply was made in 1975 ; but the company paid Rs. 7,760.90 due towards excise duty during that year. The letters, Exs. A-5 to A-7, deal with the submission of C Forms for purposes of sales tax, and Ex. A-8 is a letter to the applicant from Sree Rama Vilas forwarding a demand draft and cheque, and requesting for a resumption of supplies. Exhibits A-9 and A-10 reveal that two cheques issued to the applicant in 1972 were dishonoured. Exhibits A-1 1, A-12, A-13 and A-15 show that the company was unable to clear the documents under which two consignments of papers were supplied in June and August, 1972, and that the applicant had to request their agents at Trichur to collect the amounts. Exhibit A-14 is a letter dated October 10, 1972, from the company acknowledging receipt of Ex. A-12 consignment and stating that the goods were being kept in their godovvn and that the key had been handed over to the paper mart. By Ex. A-16 dated February 15, 1973, the company made an urgent request for supply of paper as there was a danger of its contract with the KSRTC being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a far cry from the "false representations" or the "false pretence" alleged in the affidavit, and I have not been referred to any authority to hold that the carrying on of business after the presentation of a winding-up petition, without disclosing the pendency of the proceedings, should by itself be presumed to be fraudulent. Mr. Vyasan Potti argued that where such presentation is actually followed by a winding-up order, even if it be nearly four years later as in this case, the effect of it is to hold that the company was unable to pay its debts at the time the petition was presented, and that the directors should be presumed to know even at that time that there was no reasonable prospect of repayment. A proposition so wide has not received judicial recognition so far. A company may actually be insolvent at a given time; but its directors may bona fide hold a different view. Even in a case where they are aware of the true position, they may still think that all was not lost and that they would be able to stem the rot by further borrowings and improving the business. In re F.L.E. Holdings Ltd. [1967] 1 WLR 1409 ; [1968] 38 Comp. Cas. 214 (Ch. D) is a case in point. Mr. Brow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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