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TMI Blog2009 (10) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... of proof and adequacy of evidence are matters, which are to be considered with more circumspection. The way in which the Company Court appreciated the case does not appear to be correct or proper in a proceeding of this nature, so as to have fixed the liability upon the shoulders of the appellants. In the above facts and circumstances, we find that the order impugned in the appeal, fixing liability upon the appellants to pay a sum of ₹ 38,94,950, with interest at the rate of 6 per cent per annum from 7-12-1988, is not correct or sustainable under any circumstance. As such, we set aside the impugned order and the appeal is allowed. - COMPANY APPEAL NO. 14 OF 2003 - - - Dated:- 30-10-2009 - P.R. RAMAN AND P.R. RAMACHANDRA MENON, JJ. Dinesh R. Shenoy for the Appellant. K. Moni for the Respondent. JUDGMENT P.R. Ramachandra Menon, J. - Sustainability of the verdict passed by the Company Court, fixing the liability on the appellant in a misfeasance proceedings under section 543 of the Companies Act read with Rule 261 of the Company Court Rules forms the subject-matter of this appeal. 2. With regard to the factual scenario, it is to be noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982 onwards till the date of winding up of the Company on 7-10-1988 and whether they were guilty of misfeasance. 6. The learned Counsel appearing for the appellants submits that the sole basis for arriving at the guilt on the part of the appellants was Ext. A1 report submitted by the Chartered Accountant, T.N. Radhakrishnan, which by itself was finalised without any notice to the appellants or without their involvement in any manner. That apart, it is also brought to the notice of this Court that the foundation for the said report was the mere finding rendered by the sales tax authorities, particularly with regard to the assessment year 1985-86, wherein addition of 50 per cent was made in respect of the turnover in the assessment proceedings finalised under section 17(3) of the K.G.S.T. Act on the basis of the best judgment, after rejecting the returns filed from the part of the Company . 7. The learned Counsel further submits that the appellants were not in a position to submit the records before the sales tax authorities, mainly for the reason that they were not having the custody of the documents which were stealthily removed by the employees of the Company. It is stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income was estimated and fixed at Rs. 38,94,950 which was shown as the liability of the respondents, finding them guilty of misfeasance and breach of trust and in turn subjected to challenge in this appeal for the reasons as stated herein before. 9. Referring to the materials brought to light, the learned Counsel for the appellants submits that the Steel Industry, as a whole, was running on loss during the relevant time and that there is absolutely no rationale for having fixed the profit margin at the rate of 7.5 per cent. It is submitted that the assessment was made by the sales tax authorities adding 50 per cent of the turnover to the actual turnover, stating that the books of account were not produced, that too, without giving due weightage to the specific contention raised by the appellant that they were not having the books of account with them, which were stealthily removed by the employees. It is also brought to the notice of this Court that the profit margin during the relevant time even in exceptional cases as deposed by RW.1 examined from the part of the appellant was much less than 1 per cent. It is pointed out that if the addition of the turnover, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Liquidator that the best judgment order was passed by the sales tax authorities, without giving any opportunity to the Official Liquidator , which was very much essential in view of the fact that the Company had already been ordered to be wound up and the Official Liquidator had already taken charge. It is further stated that, in reply to the said letter, the Addl. Sales Tax Officer, Kozhikode vide his letter dated 12-10-1988 conveyed that he had come to know about the appointment of the Provisional Liquidator only on 24-9-1988 and that the assessment order for the year 1985-86 was passed on 9-9-1988. The Sales Tax Officer informed that, under the relevant provisions of the KGST Act and Rules, he was not competent to revoke the assessment and that the Official Liquidator had to seek appropriate remedy under section 34 of the KGST Act. It is also averred that when the State Bank of India, the secured creditor of the Company was addressed in the matter, enquiring whether they were willing to meet the expenses for taking up the matter in appeal (as the Company had no funds to meet the expenses), the authorities of the Bank had informed that they were not willing to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbefore, particularly with reference to the contents of the paragraph No. 3 of the Report No. 36 dated 21-3-1991 of the Official Liquidator. In any view of the matter, it is stated as conceded from the part of the sales tax authorities as well, that no notice whatsoever was issued to the Official Liquidator before finalisation of the proceedings as above. In view of the undisputed facts as above, we cannot, but make a mention that it was for the Official Liquidator to have taken up the matter before the appropriate authorities, being the competent authority to represent the Company after the winding up order and after having taken over charge of the Company in liquidation. 14. Coming to the extent of the alleged profit reckoned in respect of the years in question, the evidence tendered by R.W.1 is not seen properly appreciated by the Company Court. The specific pleadings and evidence on record that the Steel Industries in those years were being run in heavy loss and the normal profit margin that could have been reasonably expected in those years was only much less than 1 per cent, whereas in the instant case, the Company in liquidation was being run on loss, which inevitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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