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TMI Blog2009 (2) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... d default in filing the statement of affairs without reasonable excuse. In view of the same, the said respondents are acquitted of the charges framed against them. - C.A. NO. 1081 OF 2004, C.A. NO. 250 OF 2007 AND C.A. NO. 202 OF 2002 C.P. NO. 101 OF 1994 - - - Dated:- 6-2-2009 - P. JYOTHIMANI, J. P.S. Raman and Rajagopal for the Respondent. JUDGMENT P. Jyothimani, J. By this application, the official liquidator has filed a complaint against the respondents who were the ex-directors of the company under liquidation, M/s. Indag Products Ltd., under section 454(5A) of the Companies Act, 1956, for the offence under section 454(1), (2) and (3) for not filing statement of affairs and also for directions under sections 626 of the Companies Act, 1956. 2. The order of winding up was passed against the company, M/s. Indag Products Ltd., by this court on February 25, 1997, in C.P. No. 101 of 1994 by appointing the official liquidator. The respondents who were ex-directors and who have to submit the statement of affairs in Form No. 57 of the Companies (Court) Rules, 1959, within 21 days from the date of winding up or from the date of appointment of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misfeasance, he has stated that he is an expert in the area of agricultural inputs. A public limited company, by name, Premier Fertilizers which became sick was taken over at the request of the promoters and shareholders in order to revamp the company and the first respondent has taken steps in the making of Indag Products as a public limited company by taking over the sick unit. By his technical expertise, he has put up a multi-purpose basic insecticide plant and herbicide manufacturing plant which are first of their kinds in the State and the Government has allotted 20 acres of land belonging to SIPCOT on long lease basis and the company has manufactured a mosquito repellent called "Deepa" by a prestigious technology and became the only unit to supply mosquito repellent to the Defence Department. It was due to the subsequent change in the Government policy, some of the important products manufactured by the company were banned in the market. It was in those circumstances, the fifth respondent and his associates have approached the first respondent to take over the company on "as is where is", basis and as a part of consideration, substitute the guarantees given by the first resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in terms of the agreement dated March 25, 1996, no agreement was entered into with the Hongkong Bank. According to the fifth respondent, respondents Nos. 4 to 6 were exonerated and respondents Nos. 4 and 6 ceased to be the director/managing director of the company with effect from April 30, 1997. It is also stated that the fifth respondent has written about the same to the official liquidator stating that it is the first respondent who has obtained agreements such as, the agreement dated March 25, 1996, which also includes the taking over, indemnity bond and the letter of undertaking and therefore, according to the fifth respondent, by letter dated October 25, 1997, he has cancelled all the abovesaid agreements and letters and submitted his inability. It is the case of the fifth respondent that except some correspondence, he has not signed any cheque on behalf of the company. It is also stated that in the meantime, the promoters through their counsel Mr. C. Raghunatha Reddy, approached the fifth respondent to help for closing the criminal litigation, filed against them by the Hongkong Bank. It is stated that the fifth respondent's idea in taking over the company M/s. Indag Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding up petition filed against M/s. Indag Products Ltd. He would also submit that the various documents stated to have been furnished by the first respondent to the fifth respondent under exhibit R4 are not relating to account books or books relating to the company. His further submission is that by virtue of non-settlement with the bank, the agreement dated March 25, 1996, ipso facto comes to an end. According to him, Form No. 32 signed by the fifth respondent has been deliberately obtained by the first respondent which will be evident from the fact that the signatures have been obtained first and typing of various materials have been done after signature and therefore, it should be treated as a manipulated record. It is also his submission that as per section 260 of the Companies Act, as additional director, he can hold office only for one year, till the date of next annual general meeting and therefore, according to him, in any event, the period expired in one year and for want of documents, the fifth respondent was not in a position to file the statement of affairs. By referring to section 633(2) of the Companies Act, he would also submit that the fifth respondent has to be exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates. (3) The statement shall be submitted within twenty-one days from the relevant date, or within such extended time not exceeding three months from that date as the official liquidator or the court may, for special reasons, appoint. (4) Any person making, or concurring in making, the statement and affidavit required by this section shall be allowed, and shall be paid by the official liquidator or provisional liquidator, as the case may be, out of the assets of the company, such costs and expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th an imprisonment of two years or with a fine which may extend to Rs. 100 per day till the offence comes to an end, as it is a continuing offence. Under section 454(5A) of the Act, the court can take cognizance of such offence and can try the offender as per the procedure laid down in the Cr. P.C., for the trial of summons cases by the Magistrate. Therefore, the relevant point to be considered in the factual context of the case is, when respondents Nos. 1 and 5 have taken the stand that they were not in a position to file the statement of affairs since they were not in possession of the documents, whether there is reasonable excuse available to them to exonerate them from the liabilities under section 454(5A) of the Companies Act. 13. It is no doubt true that in addition to such reasonable excuse which is available to the accused under section 454 of the Companies Act, the court is empowered under section 633(2) of the Act to grant relief, in case it is found that the persons so complained of negligence, default, breach of duty or misfeasance, have acted honestly and reasonably on the facts and circumstances of the case. 14. Therefore, a person who is called upon to file a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but his ability to produce the statement containing the statement of affairs of the company is the sine qua non. In the instant case, accused No. 2 resigned from the company way back in the year 1998, accused No. 3 is said to have resigned from the company way back in the year 1995. Although, Form No. 32 has not been produced by accused No. 3, the uncontroverted fact reveals that he went abroad and on that ground alone, he resigned from the company. Obviously accused No. 1 in the case, whose case has been split up on account of his non-appearance before this court, was the managing director of the company." 15. Similar view was taken by the Punjab and Haryana High Court in Haryana Drugs and Pharmaceuticals Ltd. ( in liquidation ) v. K. Singhal [2001] 104 Comp. Cas. 338 . In that case an earlier judgment rendered in Official Liquidator, R.S. Motors (P.) Ltd. v. Jagjit Singh Sawhney [1974] 44 Comp. Cas. 381 (Delhi), was referred to, wherein the term "reasonable excuse" was explained to be an excuse that would be reasonable under which the accused could not comply with the provisions of the law. By referring to various other judgments including that of the Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain in the case of C. R.E. Wood Co. (P.) Ltd. ( in liquidation ) v. Sardar Iqbal Singh [1984] PLR 124 ; [1986] 59 Comp. Cas. 978, was dealing with sub-section (5) to section 454 of the Act. It was held that merely because a person is the director of the company will not make him liable under section 454(5) of the Act. The court has to see that there was a default but also that it was without reasonable excuse. The record was completely spoilt and, therefore, it was concluded that the concerned persons were liable to be acquitted because there was reasonable excuse for not filing the statement of affairs." 16. In Official Liquidator v. Surya Partap Singh [1996] 86 Comp. Cas. 134 (P. H.), while referring to a judgment of the Punjab and Haryana High Court in Haryana Electro Steel Ltd. ( in liquidation ) v. Jagdish Gupta [1996] 86 Comp. Cas. 99, it was held that it is initially for the prosecution to prove that the books and records of the company from where the statement of affairs could be prepared were either available or accessible to the director. The relevant portion is as follows (page 144 of 86 Comp. Cas.) : "Undoubtedly, the burden to prove that absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "The next contention on behalf of the appellant is that the official liquidator can only require such other persons to submit a statement of affairs, subject to the directions of the court, as are in a position to give relevant information. This postulates that the court would apply its mind and decide in each case whether such direction should be given. It is not contemplated that the court would give direction to the official liquidator to require any and every person to file a statement of affairs merely as an academic exercise. The purpose of getting the statement of affairs is to enable effective and proper winding up of the company. The court is not required to give a direction which in effect would be infructuous. We are in entire agreement with this submission. Indeed, our learned brother has noticed that the appellant was not in a position to know anything about the affairs of the company ever since he was ousted from the management, way back in December, 1966. He had ceased to have approach or access to the books and papers of the company. He did not take part in its management. He even refused to sign the provisional balance-sheet for being submitted to the Punjab Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor, and like in alphabetical order." 20. In the minutes of meeting held in the office of the official liquidator on May 19, 1998, marked as exhibit R2 the statement of the first respondent was recorded by the official liquidator for the question as to whether the books and records of the company are in his custody ; for which, the first respondent has stated that the fifth respondent has taken over the records and some of the records are in his office at Perambur and some of them are in the factory premises at Cuddalore. The question and answer are as follows : "Q12. Whether books and records of Indag Products Ltd., are lying in the said premises, or under your custody ? A. No. They have been taken over by Mr. Mani Kumar and I understand that some of them are lying in his office in Perambur and some in , Cuddalore in the factory premises." 21. To another question No. 8, whether he has handed over the books and records as well as the keys of the company, the first respondent answered in the affirmative as follows : "Q8. Did you, hand over the books and records and keys of the company to the new management ? A. Yes, we have handed over all the records as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears with effect from March 25, 1996. 27. Under exhibit R9 agreement dated March 25, 1996, respondents Nos. 4 and 5 being the promisors executed the same in favour of the first respondent and another being the promisees, wherein it is clearly stated, "whereas the present board of Indag Products consists of the promisors and their group, and the promisees and their associates ceased to have anything to do with the management/control of Indag Products". It is also stated in the agreement that the fifth respondent being the promisor agreed to negotiate with and prevail upon Hongkong Bank to drop the criminal proceedings (C.C. No. 6931 of 1995 on the file of the learned VII Metropolitan Magistrate at George Town, Madras), and the civil proceedings (C.S. No. 1777 of 1995 on the file of the hon'ble High Court, Madras) and agreed to substitute their personal guarantee in the place of personal and corporate guarantee of the promisee, the first respondent by executing the indemnity bond on the same date. It is significant to note that in the said agreement, the fifth respondent being the promisor has stated that they have given letters of resignation to Mr. C. Raghunatha Reddy, advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaken to negotiate with the Hong Kong Bank, and in the event of such negotiation not getting through on or before April 30, 1997, an obligation is imposed on the indeminifier to return all the share certificates together with transfer forms, stating that in the event of failure to enter settlement with Hong Kong Bank by April 30, 1997, the indemnity ceases to have any force : "5. As regards Indag Products Ltd.'s dues to Hong Kong Bank, the indemnifiers hereby undertake to negotiate with and prevail upon the bank to settle/withdraw the criminal proceedings (C.C. No. 6931 of 1995 on the file of learned VII Metropolitan Magistrate at George Town, Madras) and the civil proceedings (C.S. No. 1777 of 1995 on the file of the hon'ble High Court, Madras), in a manner satisfactory to indemnity holder-1, by entering into, an agreement with the said bank. In the event of such an agreement not coming through on or before April 30, 1997, the indemnifiers shall return all the share certificates together with all the transfer forms/documents which had been transferred and handed over to them by the indemnity holder, as well as the letter addressed by the indemnity holders to Hong Kong Bank r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence, there is no difficulty to conclude that the first respondent has reasonable excuse for not filing the statement of affairs within the stipulated time. The subsequent filing of the statement of affairs by the first respondent as per the direction of this court in 2006 cannot be certainly held against him. 31. On the other hand, even though there is substance in the contention raised by the fourth and fifth respondents that they had actually no access to the records in spite of the fact that in the agreement the management is stated to have been taken over by them. But the fact remains, as admitted by the fifth respondent as RW2, that he has taken steps for negotiating the employees and creditors which goes to show that the fifth respondent has not been totally away from the management and affairs of the company. However, that itself is not sufficient to prosecute them under section 454(5) of the Act unless it is shown that the fifth respondent has been in possession of the records and that there is no reasonable excuse on his part for not filing the statement of affairs. I am doubtful as to whether the official liquidator has discharged his obligations of proving the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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