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TMI Blog2012 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected as sales tax could be used for the purpose of the company and the tax paid later. Although such deferment was only up to September 30, 1994, still the official liquidator had the burden to prove that this sales tax amount had been misappropriated by the directors jointly or by some of them or one of them or by any other officer. Non-payment of Provident Fund, ESI and EDLI liabilities. - held that:- this amount was collected from the customers or employees and the company could not use these funds. - There is no such explanation for misappropriation of Provident Fund - higher penal interest imposed. - C.A. NOS. 14 OF 2007, 466 TO 468 OF 2008 AND 645 OF 2009 BIFR CASE NO. 69 OF 1999 - - - Dated:- 19-8-2011 - I.P. MUKERJI, J. A.K. Dhandhania and B.P. Das for the Official Liquidator. Hirak Mitra, Debdutta Sen, Moloy Sil and Nilendu Bhattacharya for the Respondent. JUDGMENT 1. The company Jamshedpur Cement Ltd., was wound up by this court on January 14, 2003. The official liquidator attached to this court is in possession of all its assets and other properties. 2. As is routine in winding up proceedings, an order was made by this court on A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of his induction was to maintain "liaison" between the company, State Bank of India and other financial institutions. He was posted at Patna. Then in less than two months of his joining the company, an application was made by it to the Board for Industrial and Financial Reconstruction for declaring the company sick. On September 17, 2001, he resigned as director. He says that the reason for such resignation was that the negotiations for arriving at a settlement between the company and the financial institutions failed. On November 21, 2001, Form No. 32 recording the resignation of this respondent with effect from November 16, 2001, was filed with the Registrar of Companies, West Bengal. Therefore, the resignation was a little less than one year and two months before the company was wound up by this court. 7. The misfeasance proceedings are attacked on two main grounds. 8. The first is that this respondent was only a non-executive director. He had no responsibility for and no role in the conduct of the company's business. He only looked after negotiations to forge a settlement between the company, the State Bank and other financial institutions. Therefore, he should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shown to be so closely connected with the affairs of the company that he should be made responsible for any loss caused to the company, although no specific act of dishonesty is proved against him. Findings in C.A . No. 645 of 2009 12. I am satisfied from the evidence, for there is no contradiction of this, that the tenth respondent was a non-executive director of the company. He was taken as a director to do negotiations between the company, the State Bank of India and the other financial institutions to arrive at a settlement between them and the company. The assertion of the applicant that he tendered his resignation on September 17, 2001, has not been controverted. Neither is there any contradiction of his submission of Form No. 32 with the Registrar of Companies on November 21, 2001. According to that form, the resignation was with effect from November 16, 2001. The auditors' report does not indicate any specific act by which it can be inferred that this respondent was involved in misappropriation or misapplication of the company's assets and other properties. Therefore, applying the ratio of all the cases enumerated above, I am of the opinion that there is no eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Under section 235 of the Indian Companies Act, 1913, which was in force at the material time, the court has been given the power to assess damages against the delinquent directors, etc. If the money or the property of the company has been misapplied or there has been misfeasance or breach of trust in relation to the company by a director, an officer or other person mentioned in the section the court, after examining the matter, can compel him to repay or restore the property with interest at such rate as the court may think fit or to contribute such sums to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as, the court thinks fit. It has been expressly declared that the section shall apply notwithstanding that the offence is one for which the offender may be criminally responsible. In Halsbury's Laws of England, 3rd edition, volume 6, it has been stated at page 623 that misfeasance and breach of trust include a breach by a promoter, director, etc., of a duty to the company the direct consequence of which has been a misapplication or loss of its assets for which he could be made responsible in an action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact, to be determined upon the evidence in each case, whether a director, alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be held liable for conniving at fraud and misappropriation which takes place. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled to make good the losses incurred by the company due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable frauds to be committed and losses thereby incurred by the company." 22. Applying the above principles it appears to be quite plain that when on the face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this translation to the interpreting officer attached to my court on the latter day of hearing of this application. For the last part of the circular learned counsel for the applicant respondents referred to the original Hindi circular as, according to him the English translation was not correct. This was confirmed by the interpreting officer of this court. The interpreting officer further confirmed that the interpretation made by learned counsel was correct and not the English translation. This sales tax deferment circular said that payment of sales tax on the main product and its by products, produced by the company could be deferred till September 30, 1994. 27. Now if this circular is taken into account the applicant respondents have succeeded in reversing the burden of proof. It can no longer be presumed that they have misappropriated the amounts collected as sales tax. If the Government of Bihar deferred payment of sales tax there is a necessary implication that the amount collected as sales tax could be used for the purpose of the company and the tax paid later. Although such deferment was only up to September 30, 1994, still the official liquidator had the burden to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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