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Judgment
N.V. Ramana, J.—The official liquidator representing the company in liquidation, namely M/s. K. P. Geletine and Chemical (India) Ltd. (hereinafter referred to as "the company"), has filed this application to punish the respondents for non-compliance with the provisions of Section 454 of the Companies Act, 1956 (for short "the Companies Act").
Pursuant to the order dated July 8, 1996, passed by this court ordering winding up of the company, the official liquidator issued notices to the respondents, who were the ex-directors of the company, calling upon them to file their statement of affairs, as required by the provisions of Section 454 of the Companies Act. As no statement of affairs were filed by the respondents, the official liquidator filed the present application to punish them.
This court upon considering the rival contentions and upon hearing learned Counsel appearing on behalf of the parties, came to the conclusion that respondents Nos. 1 and 5 did not show any reasonable cause nor reason for not filing the statement of affairs, and accordingly, by order passed as farback as on June 14, 2002, held that respondents Nos. 1 and 5 failed to comply with the provisions of Section 454 of the Companies Act by filing the statement of affairs of the company in liquidation within the stipulated time, and as such, are liable for punishment for non-compliance with the provisions of Section 454 of the Companies Act. The offence of failure to file the statement of affairs of being a continuous offence, while deferring the punishment to be imposed on respondents Nos. 1 and 5, directed them to file detailed statement of affairs within four weeks.
Heard learned Counsel for the official liquidator, learned Counsel for respondent No. 1 and learned Counsel for respondent No. 5.
Learned counsel for the official liquidator submitted that respondents Nos. 1 and 5, who are the promoter and ex-managing director of the company in liquidation, are under an obligation to file statement of affairs as required u/s 454 of the Companies Act, and the liability of respondents Nos. 1 and 5 to file the statement of affairs, already having been fixed by the court by its order dated July 8, 1996, and in spite of granting sufficient time, respondent No. 1 having not filed the statement of affairs and respondent No. 5 having not fully complied with the objections raised by the official liquidator in the statement of affairs filed by him, both respondents Nos. 1 and 5 are liable to be punished having regard to the provisions of Section 454(5) and (5A) of the Companies Act.
Learned counsel for respondent No. 1 submitted that respondent No. 1 is aged about 77 years. He is a graduate in chemical engineering and technology, and under his aegis, eight companies were established since 1948. He submitted that respondent No. 1 was neither a full-time director nor a part-time director during the period the company in liquidation conducted its business and affairs. He submitted that respondent No. 1 was associated with the company in liquidation merely as a promoter and consultant, he was neither concerned with its day-to-day business or affairs nor had any access to the records. At any rate, he submitted that even before passing of the winding up order on July 8, 1996, the company in liquidation was taken over by the A.P. S. F.C. in 1995 along with the records, and as such, there were no records available. He thus submitted that there being reasonable excuse for respondent No. 1 not to file the statement of affairs, no punishment can be imposed. In support of his submission that when reasonable excuse is shown for not filing the statement of affairs, no punishment can be awarded, he placed reliance on the judgments of the Delhi High Court in C. R. E. Wood Company Pvt. Ltd. v. Sardar Iqbal Singh [1986] 59 Comp Cas 978, and of the High Court of Punjab and Haryana in Official Liquidator v. Surjit Singh [1995] 4 Comp LJ 106 : [1998] 94 Comp Cas 679 P&H and Haryana Drugs and Pharmaceuticals Ltd. (In Liquidation) Vs. K. Singhal and others, . Referring to the phraseology used in Section 235 of the Code of Criminal Procedure, 1973, "hear the accused on the question of sentence", learned Counsel for respondent No. 1 submitted that the hearing so contemplated under the said section, is not merely confined to oral submission, but also includes production of material bearing on sentence, and in support of this contention, he placed reliance on the judgment of the apex court in Santa Singh v. State of Punjab AIR 1976 SC 2386.
Learned counsel for respondent No. 5 submitted that though respondent No. 5 filed the statement of affairs, he could not comply with the objections raised by the official liquidator in their totality because respondent No. 1 who was looking after the sales and was in custody and possession of the records and books of account did not extend the necessary co-operation. He submitted that whatever information was in the knowledge and possession of respondent No. 5, he had furnished the same in the statement of affairs, and unless respondent No. 1 provides further information, he will not be able to comply with the uncomplied objections. At any rate, he submits that respondent No. 5 though was the managing director of the company since 1992, he had sold his interest therein to third parties, and now he has become bankrupt and penniless, and presently he is being fed by the community, and having regard to the fact that he had filed the statement of affairs and substantially complied with the objections raised by the official liquidator, a lenient view be taken.
After this court by order dated June 14, 2002, fixed the liability of respondents Nos. 1 and 5 to file the statement of affairs and granted four weeks time to them to file the statement of affairs, the proceedings sheet shows that the matter came up before the court only on April 26, 2004, when this court directed issuance of bailable warrants against respondents Nos. 1 and 5. Pursuant thereto, respondent No. 5 appeared before the court on July 28, 2004, represented by a counsel. On August 10, 2004, it was represented that respondent No. 5 filed statement of affairs. As the bailable warrant was not executed against respondent No. 1, this court on August 10, 2004, directed issuance of non-bailable warrant, and pursuant thereto, respondent No. 1 appeared before the court on November 9, 2004, through his counsel, and this court while recalling the non bailable warrant, gave two weeks time to respondents Nos. 1 and 2 to file the statement of affairs. On November 23, 2004, on the request made by counsel for respondent No. 1, further one week time was granted to file the statement of affairs. Again on December 7, 2004, this court directed respondents Nos. 1 and 2 to comply with the statement of affairs, if any, on or before December 27, 2004.
On December 27, 2004, when the matter was taken up for hearing, it was submitted by learned Counsel for respondent No. 1 that respondent No. 1 preferred appeal against the order dated June 14, 2002, while counsel for respondent No. 5 submitted that respondent No. 5 complied with the objections partly and sought further time to comply with the uncomplied objections. Further time having been granted, on January 18, 2005, it was reported that respondent No. 5 complied with the further objections also. Thereafter, the matter underwent 17 adjournments.
The sequence of events, as narrated above, would make it crystal clear that though this court by order dated June 14, 2002, had already fixed the liability of respondents Nos. 1 and 5 to file the statement of affairs, except respondent No. 5, who filed the statement of affairs and substantially complied with the objections raised by the official liquidator respondent No. 1 in spite of lapse of more than two years and in spite of granting sufficient time, had not filed the statement of affairs, and in fact, has even now taken an adamant and obstinate stand that he was merely a promoter and consultant and that he had no access to the records, and more so when the company was taken over by the A.P. S. F.C. even before it went into liquidation. Though respondent No. 1 had contended that he was not a director and was not accessible to the records, the fact remains this aspect of the matter was considered by this court earlier, and by order dated June 14, 2002, came to the conclusion that the day-to-day affairs of the company were being looked after by respondent No. 1, and even according to his own version, he was in possession of some of the records, which were said to be with the auditor, and though respondent No. 1 preferred appeal against the said order, it is stated that the same was dismissed.
Be that as it may, even though counsel for respondent No. 1 contended 11 that there was reasonable cause for respondent No. 1 not to file the statement of affairs, no reasonable excuse or cause was pleaded for his failure to file the statement of affairs, when this court fixed the liability of filing the statement of affairs, and on the other hand, it was found that respondent No. 1, having been looking after the day-to-day affairs, was in possession of some of the records. When respondent No. 1 was found to be looking after the day-to-day business of the company and looking after the sale and was in possession of some of the records, certainly he is under an obligation to file the statement of affairs. Though sufficient opportunity was provided to respondent No. 1 to satisfy the court as to why he could not file the statement of affairs, the fact remains that he has neither produced any evidence showing that he was not the director of the company nor entered into the witness box or produced any evidence to show that there was reasonable cause for his inability to file the statement of affairs, and this fact was already taken cognizance of by this court in its order dated June 14, 2002. Inasmuch as respondent No. 1 has neither produced any evidence nor entered into the witness box to show the reasonable excuse for not furnishing the statement of affairs, reliance placed by learned Counsel for respondent No. 1 on the judgments of the Delhi High Court in C.R.E. Wood Company Pvt. Ltd. v. Sardar Iqbal Singh [1986] 59 Comp Cas 978 and of the High Court of Punjab and Haryana in Official Liquidator v. Surjit Singh [1995] 4 Comp LJ 106 : [1998] 94 Comp Cas 679 p&h and Haryana Drugs and Pharmaceuticals Ltd. v. K. Singhal [2001] 104 Comp Cas 338 : [2002] 2 Comp LJ 222, on the judgment of the apex court in Santa, Singh v. State of Punjab AIR 1976 SC 2386, would be of no help to him, and more so when the pleas now taken were already considered, and are only a ruse to defer the imposition of sentence. So long as the statement of affairs are not filed, the offence u/s 454 of the Companies Act continues, and merely because respondent No. 1 is an educated man and has become old, he cannot be exonerated from the liability of filing statement of affairs, which was already fixed. The liability of respondents Nos. 1 and 5 to file statement of affairs having been fixed by the court already, and non-filing of statement of affairs u/s 454 of the Companies Act, being a continuing offence, the question that remains to be considered is what is the quantum of sentence that can be imposed on them.
Before proceeding to quantify the quantum of sentence to be imposed on respondents Nos. 1 and 5, this court would like to place on records its displeasure that though this court is passing orders of winding up against the companies, in majority of the cases, the post-winding up process is moving at a snail''s pace, leaving the investors, creditors and the financial institutions in the lurch. After the passing of winding up orders, when notices or summons are issued either by the official liquidator or the court, requiring the ex-managing director and other ex-directors, who were in charge of the day-to-day affairs of the companies prior to their winding up, to file the statement of affairs as required u/s 454 of the Companies Act, 1956, they are successfully evading the service of the summons, and on some occasions they have even refused to receive the same. On the other hand, they are stealthily making constant efforts to alienate the valuable properties of the company. When bailable and non-bailable warrants are issued by the court, for securing the presence of the ex-managing director or ex-directors, who are on the run, it is unfortunate to note that they are remaining unexecuted by the police for long periods, unless the indolent behaviour of the police, is taken cognizance of by the court. Even when they are appearing pursuant to the receipt of notices or summons, in most of the cases, they are neither filing the statement of affairs nor are furnishing the complete details, and in case they file, they are furnishing incomplete information and are not rectifying the same even after seeking time repeatedly. Unless the ex-managing director and the other ex-directors of the companies file the statement of affairs, it would be very difficult for the official liquidator to protect the assets of the companies or assess the assets and liabilities of the companies, who upon taking stock of the accounts and after realising the monies, settles the dues of the creditors and employees proportionately.
There are even other instances where even after the ex-managing director and other ex-directors had filed their statement of affairs, the financial institutions who have invested the public monies in the companies, are not co-operating in the sale of the assets of the companies, thereby the assets are losing their value or in the case of movable property, they are either stolen or are become junk, and in the case of inalienable properties, such as land etc., they are being encroached upon by unscrupulous elements. In this regard, the co-operation of the financial institutions, who have invested the public monies for the establishment or running of the companies, is utmost required. Unless all concerned co-operate in the post-winding up process, the realisation of debts from out of the assets of the companies in liquidation would be a distant dream.
Therefore, it is high time that this court take a serious view of such matters, and require the ex-managing director and other ex-directors of the companies comply with the provisions of the Companies Act, 1956, and file statement of affairs, as required u/s 454 thereof, and on their failure to do so, to either impose fines or send them to imprisonment or impose both fine and imprisonment, else the very purpose of incorporating some important provisions in the Companies Act, 1956, to deal with matters relating to winding up of the companies, which are to protect the interest of the creditors, employees and financial institutions, depositors, etc., who have stake in the companies, would be defeated.
Now, coming to the question of imposition of sentence on respondents Nos. 1 and 5, it is required to notice that Section 454 of the Companies Act deals with the punishment that can be imposed against a person who without reasonable excuse makes default in complying with the requirements of the section. The said provision reads as follows:
If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one thousand rupees for every day during which the default continues, or with both.
From a reading of the above provision, it is clear that a person who defaults in complying with any of the requirements of the section, without any reasonable excuse would be punishable with imprisonment for a term which may extend to two years or with fine which may extend to one thousand rupees for every day during which the default continues or with both.
Section 454(8) of the Companies Act defines "the relevant date" to 17 mean in a case where a provisional liquidator is appointed, the date of his appointment, and in a case where no such appointment is made, the date of the winding up order. In the instant case, no provisional liquidator was appointed, and the order of winding up was passed by the court on July 8, 1996. The official liquidator issued notices to the respondents on November 21, 1996, u/s 454 of the Companies Act requiring them to file statement of affairs. The said section requires the filing of statement of affairs within 21 days from the date of the winding up order of within such extended -time not exceeding three months from the relevant date. Admittedly, the statement of affairs were not directed to be filed within 21 days from the date of winding up order, which was passed on July 8, 1996, and they were admittedly, directed to be filed after expiry of three months, when the official liquidator issued notices to the respondents on November 211996, and even when the respondents failed to file the statement of affairs, the present application was filed. If the notice period of 21 days mentioned by the official liquidator in the notice dated November 21, 1996, for filing of statement of affairs by the respondents is excluded, the default in filing the statement of affairs would start from December 12, 1996, which continued up to this day, i.e., July 6, 2005 (3,126 days).
Inasmuch as the provisions of Section 454(5) of the Companies Act requires imposition of sentence or fine or both, taking into consideration the fact that respondent No. 1 is aged about 77 years, I deem it appropriate to impose fine of Rs. 100 for each day''s default, and having regard to the fact that respondent No. 1 committed default of approximately 3,126 days, I deem it appropriate to impose fine of Rs. 3,12,600 which he shall pay to the official liquidator within a period of one week from today, and in default, he shall undergo imprisonment for a period of six months.
In so far as respondent No. 5 is concerned, inasmuch as he is said to have filed the statement of affairs and substantially complied with the objections raised by the official liquidator, save some objections, which he contended require the assistance of respondent No. 1, who is said to have not co-operated, I am of the considered opinion that a lenient view can be taken, for he has not only substantially complied with the provisions of Section 454 of the Companies Act, but is said to have become bankrupt and is being fed by the community. Hence, no punishment either by way of sentence or fine is imposed on respondent No. 5.
Accordingly, the application is allowed. No costs.