Karnataka State Industrial Investment and Development Corporation Ltd. vs Official Liquidator of Virtual Dynamics Software Ltd.

N. Kumar, J.—This appeal is preferred by the Karnataka State Industrial Investment and Development Corporation Ltd., (for short hereinafter referred to as ''the Corporation'') challenging the order passed by the learned Company Judge dated 08.10.2012 where he rejected both the applications filed by the Corporation.

The Corporation is a financial institution within the meaning attached to it under the provisions of the State Financial Corporation Act, 1951. M/s. Virtual Dynamics Software Ltd., (for short hereinafter referred to as ''the Company'') was incorporated under the Indian Companies Act, 1956. The company availed financial assistance from the Corporation but failed to maintain the financial discipline and commitment to the Corporation. Exercising their power under Section 29 of the Financial Corporation Act, 1951, the Corporation took possession of the machineries and other movables from the premises of the Company. At the time of taking such possession, a mahazar was drawn of the machineries, which was seized. Subsequently, the owner of the tenanted premises where the company was carrying on its business preferred a petition for winding up of the company on the ground of non-payment of rents. The company petition was allowed. An order winding up of the Company was passed. The Corporation, on a request by the landlord made an application to the Company Court for permission to shift the materials from 2nd floor to 3rd floor of the rented premises so that the vacant possession of the second floor could be given to the owner. After hearing the parties, by an order dated 28.11.2005 the said request was granted. In terms of the said order, yet another mahazar was drawn and all the machineries and materials were shifted from 2nd floor to 3rd floor. Thereafter, the Corporation made an application for permission to sell the seized articles. The permission was granted, wide advertisements were issued and thereafter, M/s. Elvi Enterprises being the highest bidder its bid was accepted. The Corporation filed an application for confirmation of the sale and the Company Court confirmed the sale by its order dated 07.12.2006. After sale of the materials, the Corporation addressed a letter on 06.03.2007 to the Official Liquidator to depute a person so as to be present at the time of delivery of materials to the purchaser and a mahazar was drawn at the time of delivery of materials. After the aforesaid event, the Directors of the Company filed C.A. No. 1828/2007 seeking direction to the Corporation to hand over the records.

On behalf of the Corporation a vakalath was filed on 13.08.2008 and on the very next date the application was allowed directing the Corporation to hand over the records. After receipt of the said order, the Corporation realized that they are not in possession of any records. Therefore, they filed an application to recall the order dated 16.07.2008 in C.A. No. 1828/2007. They also filed an application to condone the delay in filing the said application. The said applications were opposed. However the learned Company Judge after hearing the parties passed the impugned order dismissing both the applications. Aggrieved by the said order, the present appeal is filed.

The material on record discloses before the winding up order and after winding up order there was a theft and the materials in the premises were scattered. The Corporation states they have lodged a police complaint also, whereas, the Directors of the Company dispute the said fact.

We have heard the learned counsel for the parties.

It is only when the Directors were obliged to file the statement of affairs of the company after winding up order was passed approached the Court for a direction to the Corporation to hand over the records. The mahazar drawn at the time of seizure and the mahazar drawn at the time of shifting of the materials do not disclose that the records of the Company were seized by the Corporation.

In the order passed by the learned Company Judge granting permission to the Corporation to sell the plant and machinery at Sl. No. 7, we find description as steel filing cabinet, which is conspicuously missing in the earlier mahazars. Therefore, it is clear that the steel filing cabinet, which was not seized has been sold by the Corporation. Now the question is whether the steel filing cabinet contained the records of the Company. From the materials on record, it is clear that when an application was filed for a direction to hand over the records without proper verification and under the impression if any order to be passed would in no way effect the interest of the Corporation,. The said application was not opposed. The Company Court directed the Corporation to make available the records, books and other documents to the Company to file statement of objections. It is only after that order the Corporation realized the mistake it has committed and found that they are not in possession of any records at all. The applications, objections and re-joinders filed discloses, according to the Corporation those records might have been stolen whereas; the Directors believe that it is an after thought.

Be that as it may, certainly the Corporation has no use for these records. They are not going to gain anything from declining to hand over the records if they are in possession. As far as the Directors are concerned, those records assume importance, as on that basis they have to file the statement of affairs of the Company to comply with the statutory obligation cast on them. Non-compliance of the statutory obligation would lead to penal consequence. That is how they are interested in securing the records. But in the facts of the case, if the records were not seized and now the records are not available, there is no way the Corporation or this Court can assist the Directors in securing the records. The Directors also are not in a position to secure the said records as after seizure of the plant and machinery, premises being locked; they have been kept away from the plant, machinery and the records. Under these circumstances, the Court cannot be expected to do what is impossible. Any directions issued to the Corporation to hand over the records when they are not in possession would be of no use and the Corporation will not be able to obey the said order. All this has happened because of the non-application of mind by the Corporation officials and their irresponsibility in protecting the interest of the debtor after seizure of the plant and machinery. The fact that they are two thefts, according to them one prior to winding up order and another after order shows the callous attitude on the part of the Corporation in taking care of the seized materials. In fact, when they were selling the materials, they have included an item, which they have not seized. However, all this would not confer any benefit to the Directors of the Company to get any favourable order from this Court. These facts are also not appreciated by the learned Company Judge while passing the impugned order. Under these circumstances, in the peculiar facts of the case, the impugned order passed by the learned Company Judge cannot be sustained. Hence, we pass the following order:

(i) Appeal is allowed.

(ii) The impugned orders are set aside.

(iii) The earlier order passed by the learned Company Judge is recalled.

(iv) It is made clear in the facts of this case even the Directors cannot be held responsible for not being in possession of the said records and not filing any statement of affairs of the Company. However, they could file any statement of affairs from the materials, which are available in their possession and they cannot be held responsible for the materials, which are not in their possession.

Ordered accordingly.