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TMI Blog2006 (11) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... y (in liquidation) to the Official Liquidator. They, however, kept on delaying the matter, in spite of full knowledge of the proceedings of liquidation, and ultimately after several summons, warrants and then non-bailable warrants issued for securing their presence they appeared and sought adjournments in the proceedings up to 14-11-2005. Initially, they made several unusual requests like providing requisite Forms for filing statement of affairs. Their counsel Shri L.K. Pandey pleaded ignorance of company law. Thereafter, Shri S.O.P. Agrawal, advocate appeared and filed an affidavit stating that the ex-directors have requested for documents from the State Bank of India for filing the statement of affairs. It was only after repeated persuasion that the statement of affairs was filed on 22-2-2006, without disclosing complete assets and liabilities. All the ex-directors except the ladies, who were exempted from personal appearance, sitting in the court for last about five dates fixed in the matter have refused to provide complete details of the affairs of the company. At this stage PICUP, the State Bank of India and UPFC were required to file affidavits explaining the efforts made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the unit was found to be badly damaged. The possession was taken by the district authorities on 10-6-1999, in follow up of R.C. issued by PICUP, against which an interim order was obtained on 24-3-1999, in Writ Petition No. 11903 of 1999. The PICUP lodged an FIR in which a final report was submitted, which has been set aside by this Court on the ground that the police officer did not even care to find the burnt machinery and conve-niently reported that the entire properties, which included the land also was lost in fire. Another R.C. was issued on 16-10-1999. The writ petition against the notice under section 29 of the SFC Act was dismissed on 29-7-2000. Once again recovery certificate was issued and fresh R.C. was issued against the guarantors on 24-4-2000. The Collector, however, did not take any interest to recover the dues. 6. In pursuance of fresh recovery of Rs. 76,571.78 and Rs. 11,41,907 was recovered from the guarantors and the amount was deposited with PICUP vide Tehsildar s letter dated 13-2-2003 and 11-8-2003, respectively. 7. In the third attempt the Tehsildar, Sadar, recovered Rs. 1,40,000 on 24-2-2004, from the guarantors. The PICUP informed ADM (F an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock of lining has been valued at Rs. 4.13 per sq. dcm. whereas the yearly average purchase price is Rs. 2.59 per sq. dcm, thus this stock has also been overvalued by Rs. 6.34 lakhs. Overall overvaluation of raw material stock comes to Rs. 19.68 lakhs. This also shows that there was an attempt to overstate the profits to show better performance before public issue and also to the new bankers. By overvaluation of stocks the company was also in a position to give misleading figures to bankers and thereby get the drawing power increased to get higher withdrawals from the bank for diverting the funds. ( iii )Raw material stock levels which were maintained at just 18 days of raw material consumption up to 31-3-1993, was shown instead at two months of value of raw material as at 31-3-1994, another possible way to show better performance as well as an opportunity to draw higher amount from the bankers of the company by showing inflated value of stocks. ( iv )Efforts to make over the statement of profit can also be seen from the unreasonable fact that the company s gross profit [sales - (raw material consumption + manufacturing and operational expenditure + increase/decrease in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chartered Accountants of India on this subject. However, the auditor of the company has not made a specific mention of this fact and has not qualified his report on this matter which he ought to have done. ( xii )While examining other documents of the company, which were found on record, we gathered the following further information which may be of interest and use for you : ( a )Danin Leathers Ltd., was incorporated as a private company on 20-7-1979, and became public company on 8-11-1994. ( b )Associate concerns mentioned in the prospectus are : Mahajan Tanners Ltd. Good Wear (India) (P.) Ltd. Good Year Shoe Factory (Firm) Bench Mark Leather Goods (P.) Ltd. Keshav Sons Properties (P.) Ltd. ( c )The company was running in a normal routine manner up to the year 1994, thereafter it appears that the management decided to change the functioning of the company. It was in April, 1994, that Dr. Ashok Mahajan and Mr. Ajay Mahajan joined the company as directors. ( d )Promoters included the following persons : Keshav Ram Mahajan(Father) Dr. Ashok Mahajan(Son) (MBBS, MD, Doctor) Mr. Ajay Mahajan(Son) Mr. Sanjay Mahajan(Son) All of them are shown as reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al guarantees given by the ex-directors. Relying upon Pawan Kumar Jain v. Pradeshiya Industrial Investment Corpn. of Uttar Pradesh Ltd. [2004] 121 Comp. Cas. 758, the Hon ble Supreme Court allowed the civil appeal and directed the High Court to reconsider the matter in the light of the observation made in Pawan Kumar Jain s case ( supra ). 12. In Pawan Kumar Jain s case ( supra ), it was found that when the defaulted amount could be recovered from the properties mortgaged to secure the loan the recovering authorities should not proceed against the guarantors until they have exhausted remedies against the mortgaged properties. It is apparent that Shri Ashok Mahajan relied upon the fact that there is something to recover from the mortgaged property, in pursuance of which the civil appeal was allowed on 26-9-2006. 13. Within a month thereafter the ex-directors have taken a plea before this Court (the Company Court) that the entire mortgaged properties under the Equipment Refinance Scheme were lost in the fire accident. Today Shri Sanjav Mahajan has filed an affidavit stating therein that the factory situate at 3, John s Mill Compound, Jeoni Mandi, Agra, was on rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irregularities, defaults, they have also siphoned off the money due to the creditors. The incident of fire was not investigated. The ex-directors did not renew the insurance of the pledged equipment and machinery. They did not file statement of affairs and sold the property even after the company was wound up and was officially in the possession with the Official Liquidator and have paid the bank. 21. Having regard to the facts and circumstances, the court is left with no option but to frame the charges against the ex-directors. All the three ex-directors namely, Shri Ashok Mahajan, Shri Ajay Mahajan and Shri Sanjay Mahajan are present in the court and the two ladies namely, Smt. Alka Mahajan and Smt. Juhi Mahajan are present through their counsel. The charges are thus framed as follows : ( i )That you, Smt. Alka Mahajan, wife of Shri Sanjay Mahajan, Shri Ajay Mahajan, Shri Sanjay Mahajan and Shri Ashok Mahajan, sons of late Shri Keshav Ram Mahajan and Smt. Juhi Mahajan, wife of Ajay Mahajan, all ex-directors of M/s. Danin Leathers Ltd. (in liquidation) deliberately and intentionally neglected, and failed to file statement of affairs of the company as required under section 4 ..... 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