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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 ..... 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 the Registrar of Companies, Delhi, to be inspected. A visit to the company's registered office at 3, Cavalry Lines, Delhi, showed that those premises were used by "The Narang Group of Industries" which appeared to be the proprietary concern of Kuldip Raj Narang as the head. An inspection of the records in the office of the Registrar of Companies showed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the creditors or the auditors of the company. The complainant took time to send a formal requisition to the accused for further particulars. The matter rested at that. In support of his case, the complainant examined three witnesses. The first witness is S.M. Talwar, an upper division clerk from the office of the Registrar of Companies, New Delhi. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and that other details were also incomplete. He said that in one of the columns of the statement of affairs, it was mentioned that an amount of Rs. 5,55,645.68 was due to the creditors but the names and particulars of the debts due were not given. Similarly, no details of trade debtors, loans and advances were given. According to the witness, the official liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 affairs after the institution of the present proceedings. The accused, Mokam Singh, said that he was not a director of the company on the date of its winding up and, therefore, the question of his submitting the statement of affairs did not arise. The accused also appeared as witnesses in their defence. In his statement recorded as DW-1, the accused Narang s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 described as technical director, director (banking), director (marketing), director (accounts and law), and director (company law). Under article 23, the powers and responsibilities of the directors of the company are those as given in the Act and in Table A except in so far as these stood modified by the provisions of the articles of association. Under article 22, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 managing directors, or a manager, if there is one, and otherwise every director of the company. Section 291 refers to the powers of the board of directors and says that the board of directors shall be entitled to exercise all such powers and to do all such acts and things as the company is authorised to exercise and do. Thus, the board of directors is responsible for the overall condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 the sub-section. Reference to two decisions may also be made. In a Full Bench decision of this court in O.L. of Security and Finance P. Ltd. v. B.K. Bedi [1974] 44 Comp Cas 499 (Delhi); ILR [1974] I Delhi 809 [FB], the court held that it would be for the official liquidator to prove that the default under section 454(5) of the Act was committed without reasonable excuse and as to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise 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. Shastri, learned counsel appearing for the complain-nant, however, stated that there was nothing in the Act to describe a director as active, dormant or nominal and that the Act imposed statutory duty on the whole body of directors to comply with the provisions of section 454 of the Act. Books of account, statutory books or any other record or asset of the company were not found at its registered off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was not directly responsible for the loss of the minutes books and other records. He has to show that he had in the usual circumstances reposed confidence in the directors and/or officers of the company who were entrusted with the responsibility of maintaining the minutes books and that there was no occasion for him to warrant any inquiry into the fact that the minutes books were not properly kept or were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lely 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 director of the company. He contended that the last available record was for the period 1976 which showed him as a director and that while the winding up order was made on October 20, 1978, there was nothing on the record of the Registrar of Companies to show that accused Narang was a director on that day. This argument is again, to my mind, misconceived. It is on record that though the annual returns of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prosecution has clearly proved what the accused had to do and that he deliberately refrained from complying with the provisions of section 454 containing obligations to be performed by him as a director in spite of notices from the official liquidator on a pretext which, as noted above, cannot bear scrutiny. The suggestion that the accused was merely a figurehead not taking any active part in the control of the company is, in my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 affairs, is vested in the winding-up court instead of in the ordinary criminal courts. The winding-up court, which in most cases will be the High Court, will be in a better position to judge the degree and nature of the default of the officers concerned and mete out appropriate punishment where necessary. The fear that the winding-up court would take immediate cognisance of any delay and deal adequately with those in default would by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 reference is made to the Code of Criminal Procedure, 1973 (after repeal of the earlier Code of 1898), 'complaint' has been defined to mean any allegation made orally or in writing to a Magistrate, with a view to his taking action under the Code, that some person, whether known or unknown, has committed an offence (section 2(d)). The court takes cognizance of the offence under section 190 of the Code upon receiving a complaint of facts constituting t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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