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TMI Blog2016 (12) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... ant company - Held that:- Evidence on record establish that the respondent directors thus cannot be held responsible for unaccounted inventory. It was further pointed out that as against the specific case and evidence in support thereof by the respondents, it is not the OL’s case that the inventories of the company in liquidation were not available at site when possession of land, building, plant, machinery and raw materials was taken by RIICO on 3-9-1996. Mr. Ajeet Bhandari submitted that none from RIICO has been produced by the OL to prove the said fact to controvert the evidence of Shri Sanjay Jain in regard thereto. The evidence of Dw.1 Mr. Sanjay Jain remained unshaken. And the evidence of the OL’s witnesses which included himself and the Chartered Accountant remained confined to accounts reflected in the company's books of account and the Statement of Affairs submitted by the Directors of the Company in liquidation on 28-9-2001. Based thereon inference of liability of the respondent directors was sought to be drawn.In the evidence on record, issues deserve to be decided in favour of the respondent directors and against the Official Liquidator. Allegation of non recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alok Sharma, J. Mr. K.J. Mehta, for the applicant Mr. Ajeet Bhandari, for the respondents ORDER By The Court The respondents ex-directors of M/s. San India Electro Chem Private limited (in liquidation) are being pursued by the Official Liquidator (OL) under Sections 543 of the Companies Act, 1956 (hereinafter `the Act of 1956') in the facts stated in his application for recovery of an aggregate amount of ₹ 20,19,500/- odd along with interest @ 8% per annum for their alleged misfeasance and breach of trust. The case of the OL is that the three respondents were directors at the time of passing of the order of winding up by this court qua M/s. San India Electro Chem Private limited on 20-3-1997 in company petition No.24/1996. It has been submitted that pursuant to the power granted by the company court to the OL under Section 457 of the Act of 1956 he appointed one M/s. PC Modi Company, Chartered Accountant (CA) to examine the accounts of the company in liquidation for determining as to whether any misfeasance/ breach of trust was made out. The Chartered Accountant accordingly having inspected and perused the accounts of the company in liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation from RIICO, including the books of account kept at the factory site, which he did not. Hence the respondents directors being out of possession effective 3-9-1996 could do little and were not even in a position to submit the requisite statement of affairs to the OL under Section 454(3) of the Act of 1956 within 21 days of the passing of the winding up order dated 20-3-1997. It was only subsequently that the directors were allowed access to the record in possession of RIICO under the orders of the Company Court and filed the statement of affairs on 28-9-2001. Resultantly the proceedings taken against them under Section 454(5) of the Act of 1956 were concluded in the facts of the case and they were visited with a fine of ₹ 45,000/- which was deposited by them with the OL. The respondent directors submitted that the application under section 543(1) of the Act of 1956 was not sustainable as it was based merely on the CA s report dated 27-12-2001, in the preparation of which they were not required to participate nor afforded any opportunity for any clarification. Omnibus allegations against the respondent directors have been made for alleged failure to discharge their dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself being in breach of contract. On the Advocate s opinion and in the context of the company's financial difficulties at the relevant time, cases against the suppliers of machinery for refund of advance amounts were not filed. Similarly sundry debtors by taking legal proceedings entailed expenses towards court fee, professional charges and out of pocket expenses which the company at the relevant time could not afford. It was submitted that proceedings under Section 543(1) are not merely reactive to non recovery of amount due to a company wound up but as held by the Apex Court in the case of Official Liquidator, Supreme Bank Ltd. Vs. P.A. Tendolkar [(1973)1 SCC 602] for such proceedings specific act/s of the respondent directors liable for the clearly alleged acts of misfeasance/ breach of trust have to be set out for a case against them being made out. This has not been done in the present case, it was submitted. And consequently the application under Section 543(1) of the Act of 1956 is mechanical, vague and lacking in material particulars and hence liable to be dismissed. With regard to the inventory of ₹ 6.34 lacs as reflected in the accounts of the company and sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act, 1956 is barred by limitation? ---non-applicant. 8. Relief? Issue No.7: The application under Section 543 of the Act of 1956 was admittedly filed on 6-3-2002 following the winding up order dated 20-3-1997-i.e. within five years of the winding up order. Section 543(2) of the Act of 1956, provides for a limitation of five years to file an application under Section 543(1) of the Act of 1956. And Section 458A of the Act of 1956 further excludes a period of one year from the date of winding up order in computing limitation under Section 543(2) thereof. The application under Section 543(1) of the Act of 1956 could have therefore been filed in fact within six years of the winding up order. It was in the instant case thus filed within limitation. Issue No.7 is therefore decided against the respondents and for the OL. Issues No.1,2,4 and 5: Issues No.1, 2, 4 and 5 are interconnected and therefore are being dealt with together. The case of OL is that an amount of ₹ 4.67 lacs towards sundry debt, and ₹ 9.16 lacs being advances by the company M/s. San India Electro Chem Private limited (in liquidation) prior to its liquidation for supply of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of the forfeiture clause to the suppliers benefit in the contracts for supply of machinery. Mr. Ajeet Bhandari submitted that these aspects of the matter are clear from the evidence of Dw.1 Sanjay Jain who stated that an amount of ₹ 8 lac was advanced to M/s. Ved Sassomeccanica (India) Private Limited by RIICO under agreement dated 30-11-1991 (Ex.A-14). Like wise an amount of ₹ 65,000/- was paid on 8-12-1992 as reflected in the company's ledger to M/s. Arunodaya Foundaries Jaipur also for supply of another machine for the purpose of cutting marble blocks, manufacturing marbles tiles-the company's business. However thereafter owing to the financial problems faced by the company, the remainder amounts towards the machines were not paid leading to forfeiture of amounts already paid. The company vide letter dated 15-7-1995 (Ex.A-15) asked M/s. Ved Sassomeccanica (India) P. Ltd. for refund of the amount advanced towards purchase of a machine ordered. Reminder was sent on 16-1-1996 (Ex.A- 16) and a legal notice dated 14-7-1997 (Ex.A-17) through Advocate R.P.Garg followed. In reply thereto the said company by its notice dated 4- 8-1997 (Ex.A-18) ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that as against the specific case and evidence in support thereof by the respondents, it is not the OL s case that the inventories of the company in liquidation were not available at site when possession of land, building, plant, machinery and raw materials was taken by RIICO on 3-9-1996. Mr. Ajeet Bhandari submitted that none from RIICO has been produced by the OL to prove the said fact to controvert the evidence of Shri Sanjay Jain in regard thereto. The evidence of Dw.1 Mr. Sanjay Jain remained unshaken. And the evidence of the OL s witnesses which included himself and the Chartered Accountant remained confined to accounts reflected in the company's books of account and the Statement of Affairs submitted by the Directors of the Company in liquidation on 28-9-2001. Based thereon inference of liability of the respondent directors was sought to be drawn. In the evidence on record, I am of the considered view that issues No.1, 2, 4 and 5 deserve to be decided in favour of the respondent directors and against the Official Liquidator. Issues No.3: As far as the allegation of non recovery of an amount of ₹ 3,500/- in the aggregate towards security deposit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und personally liable for misfeasance etc. of the money or property of the company or otherwise guilty of any misfeasance or breach of trust in relation to the company. In the absence of specific allegations and positive evidence, it is not possible or proper for the court to indulge in a fishing or roving enquiry so as to compel the individual director to reimburse and/ or compensate the company. In the case of Official Liquidator Vs. T.J. Swamy [1996 (86) Com Cases 696 AP] Andhra Pradesh High Court held that unless individual responsibility is identified and established it would be difficult for the court to grant appropriate reliefs on Section 543 of the Act of 1956 application. It was held that only documents such as audit reports and the balance sheet cannot establish that there was a misfeasance on the part of the respondent-directors. There should be very specific individual and personal misconducts for making out a case under Section 543 of the Act of 1956. In the case of Official Liquidator Dhavalgiri Paper Mills (P) Ltd. Vs. Chinubhai Khilachand [2003 (114) Com Cases 277] it was held that to bring the charge of misfeasance against ex-directors it is necessary that spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 543(1) of the Act of 1956. That is impermissible. No liability on the rebound is contemplated under Section 543 of the Act of 1956. Concrete positive evidence at the instance of OL and his witnesses is mandatory. Unless that burden has been discharged no liability on the directors can accrue. This has not been done in the instant case. The High Court of Karnataka at Bangalore in the case of Official Liquidator of M/s Zenith Power Systems (I) Ltd. Versus Sri K. Venkatachalam Ors. (C.A. No.752/2007 In C.O.P. No.138/2000), decided on 21-1-2013, had held that an application under Section 543 of the Act of 1956 cannot be made on vague terms and cannot be used as a power to conduct a roving enquiry to ascertain as to whether there was any act of misfeasance, malfeasance or breach of trust on the part of erstwhile directors. The averments in the application should be clear, unambiguous and specific. In the absence thereof, such application would not stand to the test of scrutiny warranted in law and be liable to be dismissed. In fact, Section 543 proceedings are proceedings to quantify loss sustained by the company (in liquidation) on account of acts of misfeasance, mal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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