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TMI Blog2008 (8) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,32,39,002 on various accounts, and respondents Nos. 1 to 10 were liable to make good the loss and granted the reliefs in the application by the official liquidator and rejected the application of discharge. All these Original Side appeals are dismissed confirming the order of the learned single judge - O.S.A. NOS. 479 AND 480 OF 2002 AND 56 OF 2004 AND C.M.P. NOS. 19149 AND 19151 OF 2002, 3776 OF 2004, 11149 OF 2005 AND C.A. NOS. 2218, 2221 AND 2225 OF 2000, 888 OF 1995, 1321 OF 2001 IN C P. NO. 88 OF 1989 - - - Dated:- 6-8-2008 - M. CHOCKALINGAM AND M. VENUGOPAL, JJ. Mrs. Nalini Chidambaram, Ms. Gladys Daniel, P. N. George Graham, Devadason and Sagar for the Appellants. Arvind P. Datar for the official liquidator. JUDGMENT M. Chockalingam, J. These appeals have arisen from the common order of the learned single judge of this court made in C A No. 888 of 1995 and C A. No. 1321 of 2001 in C.P. No. 88 of 1989 ( Official Liquidator v. T. Sudarsan [2003] 116 Comp Cas 88 (Mad)). While the former filed by the official liquidator was allowed granting all the reliefs, the latter at the instance of respondents Nos. 8 and 10 in C A. No. 888 of 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The auditors have submitted their reports to the official liquidator and based upon those reports as well as the available books and records of the company, the official liquidator submitted the report for appropriate orders under sections 542 and 543 of the Companies Act, 1956. There were two partnership firms, (1) Asian Integrated Finance and Industrial Corporation and (2) Dhanalakshmi Consolidates Finance and Industrial Investments. According to the statement of the former Director Sri P. C. Varghese recorded by the official liquidator on January 4, 1994 and January 6, 1994, under rule 130 of the Companies (Court) Rules,1959, Sri B. Rajagopal is the Group President of the Dhanalakshmi Group of Companies and Sri K. V. Sasidhar is the Group Chairman of the Dhanalakshmi group of companies, and they were the promoters of the company in liquidation. The partners of the two firms did not repay the depositors of the two firms. From a perusal of the books and records of the company in liquidation as well as the statement of Sri P. C. Varghese recorded by the official liquidator on January 4, 1994 and January 6, 1994,under rule 130 of the Companies (Court) Rules, 1959, it is seen that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amount has to be computed and to that extent these respondents' liability has to be reduced and that the report of the official liquidator is bereft of any material particulars and is based on surmises and conjectures and the charges levelled against Mr. B. Rajagopal and Mr. B. Muralidhar are vague and baseless and therefore, the application was to be dismissed. The eighth and tenth respondents in C. A. No. 888 of 1995 have filed C. A. No. 1321 of 2001, seeking an order to discharge them from the proceedings under sections 542 and 543 of the Companies Act initiated by the official liquidator in C. A. No. 888 of 1995 in C. P. No. 88 of 1989 with the following allegations : ( a )Both of them were carrying on business of accepting deposits from members of the public at interest and advancing the money on interest. The firm was regularly paying interest to the depositors and the principal amount on maturity. Section 45B of the RBI Act imposed restrictions on entities other than incorporated companies from accepting deposits from public. In the circumstances, the first applicant, namely, B. Rajagopal and the second applicant K.V. Sasidhar, decided to close down the finance bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the firms by incorporated companies is an admitted method of carrying on business. No irregularity or illegalities can be attributed to it. The taking over of the business of the two firms were in pursuance of the board resolution, dated August 31, 1985, confirmed by a general body resolution in extraordinary general meeting held on September 1, 1985. Mr. P. C. Varghese was in charge of the affairs of the company. The applicants had no financial interest in the company, neither they were holding any shares in the company. For some time, the first applicant acted in the capacity of a non-executive director in some of the companies and due to difference of opinion, he had resigned and relinquished the said position. It was Mr. K. V. Sasidhar, who had control over the assets of various companies and he was the pivotal person behind the group of companies, where neither of the applicants had beneficial interests. The said K. V. Sasidhar passed away on February 13, 1999 and it is totally unfair to take action against the applicants after having failed to take action in terms of the offer made by K. V. Sasidhar during his life time. The present proceedings under sections 542 and 543 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een followed; that only xerox copies of the documents have been produced by the official liquidator; that the appellants are not able to question the finding of financial irregularities committed by the company in the course of the business ; that the official liquidator has failed in his obligation to examine K. V. Sasidhar under rule 130 ; that instead, the official liquidator examined only P. C. Varghese ; that it is pertinent to point out that the report of the official liquidator should have been filed only after the receipt of the statement of affairs; that filing of the report without receiving the statement of affairs was a grave procedural irregularity ; that no credibility could be attached to the auditor's report relied on by the liquidator; that the liquidator failed to prove the allegation as per the procedure established by law ; that the statement of Varghese cannot be taken as evidence ; that any evidence sought to be relied upon by the official liquidator should be proved in a duly constituted trial before the company court with an opportunity to the appellants to cross-examine the witnesses and controvert the opinion of the auditor regarding the involvement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany; that he is not guilty of misfeasance and breach of trust when he acted as per the directions of respondents Nos. 8 to 10, and hence, the order of the learned single judge has got to be set aside, and the appellant be discharged from the claim. The court heard learned senior counsel for the official liquidator on the above contentions. He would submit that the learned single judge was perfectly correct in granting the relief in the application made by the liquidator; that the materials produced by the liquidator have been considered by the learned single judge; that as per the provisions of law, the application has been filed by the liquidator; that there is nothing to disturb the finding recorded by the learned single judge and hence, all the appeals have got to be dismissed. As could be seen above, the official liquidator sought the reliefs specifically alleging that the company had lost Rs.. 18,32,39,000 which respondents Nos. 1 to 10 were jointly and severally liable; that they were liable to make good the loss; that they are guilty of fraud played, misfeasance and breach of trust in relation to the affairs of the company in liquidation; and that their acts made them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire company's assets. It is further contended that at the time of the formation of the company in liquidation, these respondents never signed the memorandum of articles of association, nor they were on the board of directors of the company; that under such circumstances, at no stretch of imagination, no liability could be attributed to them; that it was a company constituted for a lawful purpose and cannot be stated to be fraudulent; that the application filed under sections 542 and 543 of the Companies Act has got to be dismissed as non-maintainable since the facts and circumstances do not warrant an application under sections 542 and 543 of the Companies Act; that as far as section 542 was concerned, it was a quasi criminal in nature ; that in order to decide the same, evidence was to be adduced; that only on appreciation of evidence, it could be decided ; that as far as section 543 was concerned, they were neither directors nor promoters of the company ; that under the circumstances, they could not be found liable, and hence, the application filed by the official liquidator must be dismissed and the application filed by respondents Nos. 8 and 10 be ordered. Originally, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pages 1 to 3 of the typed set of documents filed by the official liquidator, would indicate that the eighth respondent has signed as director. Repeated contentions of the eighth respondent was that he was neither a director nor a promoter of the company. A letter was addressed to all the depositors as could be found in page 12 of that typed set which was issued by the eighth respondent stating "B. Rajagopal, Group President, Dhanalakshmi Group Family Letter". A reading of the letter would clearly reveal that Dhanalakshmi group of companies have taken over Gangothri Chemicals and M. G. Brothers Lorry Service ; that they have also been awarded dealership by Ashok Leyland; and that they have entered into the field of plantation, transportation, finance, marketing, electronics, metal engineering and consultancy. Thus, they called for the continued support of the members. The letter was signed by the eighth respondent as a Group President which would dearly indicate that the eighth respondent though not named as director or the promoter of the company, has taken active participation in the management and also in the activities of the company calling himself as Group President. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded over to him. It is pertinent to point out that Sasidhar was calling himself as the chairman of the company and respondents Nos. 8 and 10 though they were not shown either as directors or promoters of the company, were actually carrying on the management. From the above letter, it would be quite dear that respondents Nos. 8 to 10 have owned the responsibility, and they had admitted that the acts were done with the clear knowledge, and they also knew the consequences of the same including the actions both civil and criminal. In the course of the statement, P.C Varghese has pointed out certain pencil notings in the minutes book which were made by the eighth respondent. Nowhere in the minutes of the meeting signed by the directors, either the list of the members attended the meeting or the signatures are found. According to the seventh respondent, eighth respondent gave instructions to write up the minutes books of the meeting at the residence of another director. It is dear from the statement of the seventh respondent that the board meeting was neither conducted, nor the directors attended. It is true that the company in liquidation had seven directors who are shown as responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidator was not given custody of the jewels. Despite service of notice and reminders, except the seventh respondent all other respondents including respondents Nos. 8 and 9 neither appeared nor had given the statement of affairs. They have not appeared before the court for a period of nearly 6 years which situation compelled for issuance of bailable warrant, and only thereafter, they appeared. It would be quite clear from the available materials that it was a fraudulent scheme designed by respondents Nos. 8 to 10 who were originally partners of the firm to make it appear as if a new company namely the company in liquidation, was promoted by the seven directors shown as respondents Nos. 1 to 7, and as if a resolution was passed by the company to take over the assets and liabilities of the two firms. Though respondents Nos. 8 to 10 have not shown themselves as the promoters or directors of the company from the materials available, it would be quite clear that they have actually promoted the company in question making 7 of the staff including the seventh respondent who joined in one of the firms as Junior Accounts Officer, as directors of the company. That apart, the issuance of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, manager, liquidator or officer of the company ( a )has misapplied, or retained, or become liable or accountable for, any money or property of the company ; or ( b )has been guilty of any misfeasance or breach of trust in relation to the company; the Tribunal may, on the application of the official liquidator, or the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the court thinks just or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal thinks just." A reading of the above provisions would make it clear that section 542 would cover "any other person". In the instant case, the eighth respondent has acted as the Group President and the ninth respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r proceeded against the assets and properties which were with him, the entire matter would have been solved ; but, neither the affidavit was placed before the court, nor there was any action taken against the individual or the assets ; and that the instant application has been brought forth vexatiousry against the appellants herein, cannot be countenanced for more reasons than one. As narrated above, the eighth respondent has been acting as the Group President of the company under liquidation and has issued deposit vouchers, and the number of letter correspondences would also make it clear that though he has not shown himself as a promoter or a director, he was actually carrying on the affairs along with others. Thus, they were all jointly and severally responsible, and pointing to the ninth respondent, he could not come out of the clutches of law or liability. It is true that an affidavit of Mr. Sasidhar is referred to, and it is also pointed out in the report that the affidavit could not be traced and produced before the court ; but, a communication was addressed to Mr. Varghese, the original of which was placed for perusal of the court. On perusal, the same would make it abund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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