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TMI Blog2009 (2) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... e official liquidator shall be merely subject to the directions of the court and will require no prior sanction to initiate action. If there is a default on the part of the person liable to give the statement of affairs under the above circumstances within time, the official liquidator is entitled to assume that there is no reasonable excuse and by making express statement that there was no reasonable excuse to make such default, he could make a complaint to the court for action for the offence under section 454(5) by resorting to the provisions of section 454(5A). - C.P. NOS. 58 OF 1998 AND 214 OF 2003 C.A. NOS. 340 AND 341 OF 2008 & OTHERS - - - Dated:- 19-2-2009 - K. KANNAN, J. Neeraj Khanna, Ms. Jaishree Thakur, Puneet Kansal, Ms. Punita Sethi, Sanjiv Ghai and Arun Bansal for the Official Liquidator. Anand Chhibbar, Sapan Dhir, Vijay Sharma, R.S. Chahar, Manish Jain, Rahul Sharma, Ms. Jaishree Thakur, Rajesh Sharma, Anil Aggarwal, Deepak Suri, Dinesh Nagar, Kamal Sehgal, V.M. Gupta and Amar Vivek for the Respondent. JUDGMENT (I) Scope : In the above bunch of cases, the issue is the extent of power of the company court to give directions to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or an officer thereof, their value and the dates on which they were given; ( d )the debts due to the company and the names, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof; ( e )such further or other information as may be prescribed, or as the official liquidator may require. (2)The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company ; or by such of the persons hereinafter in this sub-section mentioned, as the official liquidator, subject to the direction of the Court, may require to submit and verify the statement, that is to say persons ( a )who are or have been officers of the company ; ( b )who have taken part in the formation of the company at any time within one year before the relevant date ; ( c )who are in the employment of the company, or have been in the employment of the company, within the said year, and are, in the opinion of the official liquidator, capable of giving the information required ; ( d )who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs to be made to the official liquidator shall follow within 21 days from the date when an order of winding up is made or an official liquidator is appointed as a provisional liquidator. The details to be contained in the statement of affairs are set out under clauses ( a ) to ( e ) of section 454(1) of the Companies Act. Section 454(2) sets out the formality of how the statement shall be submitted and verified by the directors and by the person who on the "relevant date" was the manager, secretary or other chief officer of the company. The section also enables the official liquidator, subject to the directions of the court to submit and verify statements who are or have been officers of the company, who have taken part in the formation of the company at any time within one year before the "relevant date" or who are or have been in the employment of the company within the said year and who are capable of giving information required or who are or have been the officers of the company or in its employment during the period to which the statement relates. Sub-section (5) is the penal section which states that if any person without reasonable excuse makes default in complying with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective duties of the official liquidator and the directors sets out at page 597 as follows : "It cannot be disputed that, unless the statement of affairs of the company in liquidation is filed, it is not possible to facilitate the winding up proceedings and it is not possible to know the assets and liabilities of the company. It is not possible to know as to who are the creditors of the company, debtors of the company and, in such a case, it is not possible to file claims against the debtors within the prescribed period of limitation." (IV) The rival contentions : ( i ) Classes of directors : 9. The instances brought out on behalf of the categories of directors seeking exculpation of the charge of derelict to the following circumstances : ( i )Persons whose names do not find a place in Form No. 32 filed even one year before the date of winding up. ( ii )Nominee directors of financial institutions which had lent moneys to the company and which were interested in ensuring that the amounts were not misspent. ( iii )Person who did not regularly attend to the meetings of the company and who by consecutive absence obtained vacation of their offices as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(13) is a complete answer to counsel arguing for dropping of proceedings against the so called ex-directors or nominee directors. The provisions, according to him, shall be interpreted for the purpose for which it is enacted and points out to the decision of the hon ble Supreme Court in Raghunath Rai Bareja v. Punjab National Bank [2007] 135 Comp. Cas. 163 which sets out in paragraph 38 that the court shall apply a purposive interpretation to what the law intends to do. The decision is rendered by the hon ble Supreme Court in the context of transfer of proceedings pending before any court to the Debts Recovery Tribunal that was required to be done under section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. He would use this to say that the purpose of collection of the statement of affairs being the predominant duty that has relevance up to the disbursal shall obtain an elastic interpretation that would include all classes of persons who are acquainted with the affairs of the company. 13. There have been decisions on nominee directors and ex-directors who have been excluded from the liability for prosecution under section 454(5A) and they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmoning order and subsequent proceedings, conducted on the basis of complaint in question issued under section 58A of the Companies Act, were directed to be dropped. In Haryana Electro Steel Ltd. v. Jagdish Gupta [1996] 86 Comp. Cas. 99 (Punj. Har.), the court had found an ex-director who had resigned much before the winding up order had no obligation as ex-director to file any statement of affairs. In State of Haryana v. Brij Lal Mittal [1998] 93 Comp. Cas. 329 (SC), the court ruled in a case of prosecution under section 34(1) of the Drugs and Cosmetics Act, 1940, that a bald statement in the complaint that the accused were directors of the company with no other material to show that they could be vicariously liable as persons in charge of the company and also as persons responsible to the company for the conduct of its business, the prosecution against such directors were liable to be quashed. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 127 Comp. Cas. 563 1 (SC), dealt with issues of relevant averments in the complaint for offences under sections 138 and 141 of the Negotiable Instruments Act, 1881, when it said that it was necessary to avert that, at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the company concerned. 18. Karnataka State Financial Corpn. v. N. Narasimahaiah [2008] 143 Comp. Cas. 176 was a decision of the hon ble Supreme Court while laying down the principles of interpretation in the context of interpreting the term guarantee occurring under the State Financial Corporation and stated in paragraph 36 as follows (page 190) : "While interpreting the provisions of a statute, the court employ s different principles or canons. To interpret a statute in a reasonable manner, the court must place itself in the chair of a reasonable legislator/author. Attempt on the part of the court while interpreting the provisions of a statute should, therefore, be to pose a question as to why one provision has been amended and the other was not? Why one terminology has been used while inserting a statutory provision and a different clause in another? It is well-known that casus omissus cannot be supplied." 19. The decision was cited by counsel for the official liquidator to bring home the point that if section 454 was read as a whole, it would admit of no ambiguity that any person who answered the description under section 454(2) clauses ( a ) to ( d ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of the Act itself for wherever such a previous sanction was necessary, the Companies Act makes specific provision for obtaining the sanction. The obvious immediate illustration could be a reference to section 457 itself which, while detailing the powers of the official liquidator, refers to the sanction of the court to do certain acts. Without such sanction none of the activities detailed in clauses ( a ) to ( e ) could be done by him. 22. It is one thing to refer to the "directions of the court" but another to require previous sanction. The "directions of the court" means no more than the fact that all the functions of the official liquidator shall be subject to directions either way by the court. The expression "subject to the approval" was explained succinctly in a judgment of the Full Bench of the Assam High Court in U. G. Koring Singh Lyngdoh v. Executive Committee, District Council, U.K.J. Hills District AIR 1971 A N 129. The reference of the Full Bench was in relation to an election dispute and while interpreting the expression "subject to the approval" occurring under a local enactment, it said that it would be an appointment that is valid and effective until ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, he had a reasonable cause for making the default. This decision is to show that the burden which is cast on the official liquidator would be taken as discharged, the moment the director did not comply with the notice requiring furnishing of the statement of affairs within the prescribed time. The Full Bench did not leave the case without stating that the point of reasonable excuse would be decided on its own facts and it was not possible to state at the threshold whether the onus had been discharged or not. A decision in the matter of Samsung Acrycot Ltd. (In Liquidation) v. Tarlochan Singh [C.P. No. 211 of 2002 decided by this court on July 26, 2007] and another decision in Sandal Chit Fund Financiers (P.) Ltd. v. Narinder Kumar Sharma [1991] 79 Comp. Cas. 25 (Punj. Har.), are cases where this court held on proof of fact that the ex-director could not be prosecuted in view of his proof of cessation of office prior to the relevant date. 25. C.R.E. Wood Co. (P.) Ltd. v. Sardar Iqbal Singh [1986] 59 Comp. Cas. 978 , was a decision of the Delhi High Court that explained the initial burden on the official liquidator to establish that the person against whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k; ( b )not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto; ( c )not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement." [Emphasis supplied] 29. A Stock Co. v. Dilip Kumar Chakraborty [1996] 87 Comp. Cas. 139 , was a decision of the Calcutta High Court, while examining the question of any immunity to a nominee director under Industrial Reconstruction Bank of India Act, 1984, said that acts in good faith shall be proved only at the time of trial and cannot be assumed. A decision of the Gujarat High Court in Official Liquidator, Trimurthy Agro-Chemical Ltd. v. Niranjan Jayantilal Tolia [1984] 56 Comp. Cas. 380 , was with reference to a director who did not attend the meetings of the board for more than three years prior to winding up of the court. The High Court cautioned that existence of liability to file a statement is not wholly dependent on the proof of "reasonable excuse" and the excuse must be such as may appear t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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