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TMI Blog1986 (12) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... of providing technical consultancy to companies. The company had various other objects also. On the making of the winding-up order, the statement of affairs was to be filed as required under section 454 of the Act. This was not done within the prescribed time and the official liquidator, therefore, as a complainant, filed the present complaint under section 454(5) of the Act. This sub-section (5) is as under : "(5) If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred rupees for every day during which the default continues, or with both." There are three accused. The case against accused No. 2 was separated and the present complaint, therefore, proceeded only against accused No. 1, Kuldip Raj Narang, and accused No. 3 Mokan Singh. In the complaint, it is mentioned that on the passing of the winding-up order, the complainant came to be in charge of the affairs of the company and that he caused the registered office of the company and the records of the company maintained in the office of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before filing the complaint and only Narang acknowledged the same but failed to comply with that. The complainant, therefore, says that the accused failed, without reasonable excuse, to file a statement of affairs as required and that the complainant is unable to carry on the liquidation proceeding. He says it was the duty of the former directors to file the statement of affairs and having failed to do so, they are guilty of an offence punishable under section 454(5) of the Act. The court took cognizance of an offence and summoned the accused. On notice being issued to them on May 16, 1983, under section 251 of the Code of Criminal Procedure, 1973, the accused pleaded not guilty. Thereafter, evidence of the complainant was recorded. Meanwhile and prior to the issue of the aforesaid notice, an opportunity was granted to the accused to file a statement of affairs. In this connection, reference may be made to the order dated April 15, 1981. It appears that a statement of affairs was in fact filed by the accused Narang on or about September 6, 1982, but it was defective in many ways and did not fulfil the requirements of the section or rule 127 of the Rules. It did not give the names ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count for the year 1974-75 was not filed. The witness, S.M. Talwar, denied that it was A.P. Sehgal who was responsible for the day-to-day affairs of the company. I may also note here that the winding-up petition (O.P. No. 74 of 1977) was filed on October 18, 1977, and the affidavit in answer to show cause why the petition be not admitted was filed by T.P.S. Randhawa on behalf of the company. The second witness of the complainant is V.N. Sharma, a technical assistant in the office of the official liquidator. He referred to the issue of notices requiring the directors of the company to file the statement of affairs and for handing over the records and assets of the company. Since notices remained uncomplied with, the present complaint came to be filed. He said that during the pendency of these proceedings, a statement of affairs was filed but that was defective and it was prepared from the bank accounts of the company and not from the account books. The witness said that the account books were with the directors and they had not surrendered the same to the complaintant. He said in the statement of affairs that the names of the banks, account numbers, etc., had not been mentioned an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he could not say whether the accused, Narang, was not in-charge of the day-to-day affairs of the company or whether he was not in possession of the account books, vouchers, minute books, etc. He said that he did not know in whose possession the entire record of the company was kept and he also could not say if A.P. Sehgal was the finance director. He said that the accused Narang was a director of the company on the date of its winding up. This, he said, was on the basis of the records of the Registrar of Companies. Statements of the accused Narang and Mokam Singh were recorded under section 313 of the Code of Criminal Procedure. In this statement, Narang said that he was not a director of the company on October 20, 1978, the date of its winding up. He said he remained a director from the inception of the company until he left India for Berkeley in the year 1977. He said he did not file the statement of affairs within the time prescribed because he was not in charge of the conduct of the affairs of the company at the material time and he remained out of India from 1977 to 1978 and could not have, therefore, submitted the statement of affairs. He said he did submit a statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing used by the company. He said that as far as he knew the relevant record of the company was in the possession of the other two directors, Sehgal and Randhawa. In his cross-examination, he denied the suggestion that his appointment as a director of the company was in fact confirmed in the board meeting of the company. He said he became aware of form No. 32 filed by the company showing him as an alternate director only during the pendency of these proceedings. He said he was never aware of any such form No. 32 having been filed earlier. That is all the evidence in the case. During the course of arguments, a copy of the memorandum of association and articles of association of the company were also placed on record which was admitted by both the parties. It is mentioned in the articles of association that where no specific provisions have been made, provisions of Schedule I, Table A of the Act, shall apply. This would also be, to an extent, the effect of section 28(2) of the Act. Article 21 gives the names of the first directors who are seven in number. The accused, Narang, is described as organisation director and A.P. Sehgal as director (finance). Other directors have been des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the relevant date or within such extended time not exceeding three months from that date as the official liquidator or the court may for special reasons appoint. The relevant date of course would be the date of the winding up order. Sub-section (5) which prescribes punishment for the default has already been set out above. I have set out sub-sections (1) and (2) above so far as these are relevant to this case. At this stage, some of the provisions of the Act which have a bearing on the case may also be referred to. Section 163 requires that register of members, copies of all annual returns, etc., are to be kept at the registered office of the company. Under section 193, minutes of the general meeting and board meetings of the company are be kept and under section 196, these are required to be kept at the registered office of the company. Then, under section 209, the requirement is that every company shall keep at its registered office proper books of account with details as mentioned therein and the persons responsible for securing compliance with the provisions of this section are liable to be punished for default. Under sub-s. (6) of s. 209, these persons would be the mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of directors or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him; and it would also include a director occupying the position of managing director by whatever name called. A managing director is, however, to exercise his powers subject to the superintendence, control and direction of the board of directors. Certain powers of routine nature as given in the proviso to this sub-section would not be deemed to be substantial powers of management. Under section 303, every company is to keep at its registered office a register of its directors, managing director etc. containing particulars as given in the section. Under sub-section (2) of this section, a company is to send to the Registrar of Companies a return in the form prescribed containing particulars as specified in the register of its directors mentioned above and is also to send a notification, again in the form prescribed (Form No. 32), of any change among its directors, managing directors, managers or secretaries, etc., specifying the date of the change. These returns are to be filed within the specified period as given in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was he who was to maintain the account books and other statutory records of the company. It was also stated that the accused Narang was unaware of the affairs of the company and in spite of that he tried his best to submit a statement of affairs and which he did though it was not in the form prescribed and did not contain the relevant particulars. It was also submitted that the court should exercise discretion and dispense with the filing of the statement of affairs in the circumstances of the present case. It was submitted that though the petition was advertised, no creditor was forthcoming. Strong reliance was placed on the decision of this court in B.K. Bedi's case [1974] 44 Comp Cas 499 (Delhi) [FB]. Mr. B.K. Seth, learned counsel for Mokam Singh, adopted the arguments of Prof. Ved Vyas but stated that Mokam Singh was appointed as additional director and that there was nothing on the record to show that his appointment was approved in the annual general meeting of the company. He also said that it was A.P. Sehgal who was looking after the affairs of the company and that after the death of Sehgal, accused Randhwa was looking after the affairs of the company. Mr. V.V. Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who are termed as managing director or a whole-time director. Again, a managing director or a whole-time director delegates various functions to the officers of the company when it is not possible for him to attend to the same. The board of directors is duty-bound in the management of the affairs of the company to ensure that statutory records and other records of the company are maintained in accordance with the provisions of law. If, however, the directors are in a position to explain that the responsibility for the maintenance of the minutes books etc. were delegated or otherwise entrusted to any particular director or officer of the company and that they bona fide believed that the said minutes books, etc., were being kept in a proper and safe manner by the said director or officer of the company, then in that case, they might not be held responsible for the loss or non-maintenance of the minutes books. It is the duty of each and every director to explain as to why he should not be held responsible for the loss, non-maintenance and non-availability of the minutes books in the facts and circumstances of each case. A director cannot escape liability merely by pleading that he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required to keep the minutes books and other statutory records of the company. These descriptions of the directors do not explain or define the functions of the directors. Accused Narang has been unable to show as to what were his functions when he was shown as director (organisation). Again, I would reject this argument that merely because A.P. Sehgal was described as director (finance), it was he who was solely responsible for the conduct of the affairs of the company. The accused also said that they were not the directors on the date of the making of the winding up order. Accused Narang said that he did not attend any board meeting for about two years and that he received no notice of any such board meeting and also that he was out of India for a certain period. There is nothing on the record to show that any board meeting was held during this period or that any notice of any such meeting was at all issued or that accused Narang did not obtain any leave of absence to attend any such board meeting. For all that matter, there might have been default in holding the meetings of the board of directors. As per the records of the Registrar of Companies, the accused Narang was a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of the passing of the winding up order. He has, therefore, to be acquitted. As far as accused Narang is concerned, he was aware of the winding up order and of his duty to file the statement of affairs within the prescribed period. This he failed to do. Notices were sent by the official liquidator requiring him to file the statement of affairs. This again was not done by him. Statutory books and other books of the company were not handed over to the official liquidator, and in fact I would say he was prevented from taking these into possession as these were not found at the registered office of the company for which default the directors could also be liable under the Act. It is correct that in the present case, it is not enough for the complainant to prove merely the prohibited act and then must the defendant bring himself within the statutory defence ( sic ) . The prosecution must bring home to the accused either by direct or circumstantial evidence showing liability of a guilty mind based in the form of actual knowledge or connivance because of the use of the words "without reasonable excuse" in section 454(5) of the Act. To my mind, in the present case, the prosecuti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not, therefore, think that in such a case the provisions of section 360 of the Code of Criminal Procedure, 1973 should be invoked which provide for release on probation of good conduct or after admonition, as was contended before me. As to why sub-section (5) of section 454 of the Act was substituted in the Act as it now stands can be best found from the recommendations of the Companies Act Amendment Committee. The relevant portion of the recommendations of the Committee is as under ; "It has been the complaint of official liquidators that the statement of affairs is not filed in spite of repeated reminders and warnings, and if filed at all, is filed only after considerable delay. The penal provision is hardly ever enforced apparently because a complaint has to be made by the official liquidator to the criminal court, and this involves delay. Much of the delay in winding up is caused by the statement of affairs of the company not being filed in time to enable the Official Liquidator to take the necessary action. It would facilitate his work and speed up the winding-up of companies, if the power to punish the officers of the company who default in filing the statement of affair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 129 ITR 328 was overruled. A question, however, arose as to whether sentence of fine which is for each day during which the default continues is to be limited up to the date of filing of the complaint or up to the date of conviction. The first impression was that perhaps it would be up to the date of conviction in the present case inasmuch as the court did take notice of the fact that during the pendency of this complaint, the statement of affairs was not tiled and that which was filed was altogether not in accordance with the provisions of section 454(1) of the Act and could not be termed as a statement of affairs in the eye of law. However, in my opinion, a sentence of fine cannot be imposed for the period after filing of the complaint. Sub-section (5A) of section 454 of the Act is as follows : "The court by which the winding up order is made or the provisional liquidator is appointed, may take cognizance of an offence under sub-section (5) upon receiving a complaint of facts constituting such an offence and trying the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure, 1898, for the trial of summons cases by magistrates". If referen ..... 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