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Judgment
V.V.S. Rao, J.—This is an application by way of Judges summons filed by the Official Liquidator (OL) acting as Liquidator of M/s. Garvee Granites Limited (in liquidation). In the application filed u/s 468 of the Companies Act, 1956, read with Rule 9 of the Companies (Court) Rules, 1959 (the Rules, for brevity), Liquidator prayed this Court to direct the respondent to remit an amount of Rs. 80,76,906/- with interest at 12% per annum to the credit of the company in liquidation.
An affidavit is filed by the OL in support of the application with the following allegations and averments. By an order dated 20.09.2001 in R.C.C.No.6 of 2001 this Court directed winding up of M/s. Garvee Granites Limited. The OL attached to this Court was appointed as Liquidator u/s 449 of the Companies Act. Liquidator filed C.A.No.32 of 2006 u/s 477 of the Companies Act to summon the respondent, who is Ex-Managing Director, and examine him with regard to details of the quarry lands owned by the company in liquidation. The Ex-Managing Director appeared before the Court and furnished details of land owned by Company situated in different villages of Khammam and Warangal Districts. All these lands were taken possession by OL with the assistance of State Bank of India, who advanced loans to the Company in liquidation. While taking possession, Officials observed illegal blasting and quarrying activities. The same was reported to the Court. Thereupon this Court directed to contact qualified technical person to evaluate and assess the loss sustained by the company due to illegal mining. Subsequently, by order dated 27.12.2006 this Court directed Assistant Director, Mines & Geology (ADMG), Khammam, to inspect the company lands in two Districts and ascertain the value of illegally mined minerals. The ADMG submitted report vide letter dated 16.03.2007 estimating the value of illegally mined mineral at Rs. 32,17,060/-. The value of mineral which was extracted and dispatched legally was also estimated at Rs. 98,93,287/-. As per the report, in the land comprised in survey No. 13 of Gudurupadu village and survey No.389/B of Beerolu Village, the lessee carried out mining work during the pendency of the proceedings before the Board for Industrial and Financial Reconstruction (BIFR) from 31.03.2001 to 20.09.2001. Therefore, this has to be accounted for by the respondent. As assessed by the ADMG, the total value of black granite extracted in the lands comprised in different survey numbers is Rs. 80,76,906/-. Insofar as the land situated at Ravigudem, Ammapalem Villages in Warangal District, as per the report of the ADMG, no leases were granted to the company, and therefore, exact quality and value of the minerals could not be assessed. It is further alleged that respondent being Ex-Managing Director failed to disclose existence of subject lands to the Office of OL and also allowed quarrying/excavation of minerals by third parties. Therefore, he is alone liable to pay the amount claimed in the application.
The respondent filed a counter affidavit opposing the application. The brief contents of the same are as follows. The respondent is not connected with the alleged illegal mining as referred to in the report of the ADMG. He is also not connected with the alleged mining operations in survey No. 13 of Gudurupadu and survey No. 389/B of Beerolu Village. That the value of illegally mined granite is Rs. 80,76,906/- is denied. During the examination of respondent u/s 477 of the Companies Act the Liquidator has not questioned about the alleged illegal mining or enjoyment or possession of the properties by the respondent. Therefore, the present application for direction of payment is not maintainable. There is no material on record to show that respondent is liable to pay the amount. Respondent has not misappropriated any amounts, and having filed a similar application earlier, it is not open to OL to file another application.
Learned Counsel for the Official Liquidator and learned Counsel for the respondent made their submissions reiterating their position as disclosed in pleadings. A reference to these submissions is made at appropriate place.
The basis for the present application u/s 468 of the Companies Act is the report of the ADMG submitted to the OL vide letter dated 16.03.2007. Some reliance is also placed on the statement of affairs by the respondent. The thrust of the argument of the learned Counsel for the OL is that though in the prospectus of the company (issued in connection with public issue of equity shares) it is shown that an extent of Acs.66.50 cents has been acquired by the company for mining, and though mining lease was obtained for quarrying granite, the respondent failed to remit the amounts realized from sale of granite to accounts of the company. It is also the contention that some lands belonging to the company were leased out to third parties and the lease amounts were not accounted for. The contention is opposed by the learned Counsel for the respondent. According to him, unless and until it is shown that any money or property is in the custody of the respondent, an application u/s 468 of the Companies Act would not lie. He would further submit that if the land belonging to the company was illegally quarried, the remedy is to proceed against such persons and not to proceed against the respondent.
Before taking up the point that would arise for consideration, it is necessary to notice the legal principle applicable to the case.
Section 468 of the Companies Act reads as under.
Delivery of property to liquidator:- The Tribunal may, at any time after making a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, officer or other employee of the company to pay, deliver, surrender or transfer forthwith, or within such time as the Tribunal directs, to the liquidator, any money, property or books and papers in his custody or under his control to which the company is prima facie entitled.
The above provision enables the Court to direct any contributory, trustee, receiver, banker or agent, Officer or other employee of the company to pay any money in the custody or under his control to which the company is prima facie entitled. Therefore, before availing the remedy u/s 468 of the Companies Act, the liquidator must demonstrate that company''s money is in custody or in control of a contributory officer of company etc. If legally or otherwise the property or money of the company in liquidation is in the custody or under the control of third parties, the remedy is not Section 468 of the Companies Act. The liquidator can file an application u/s 456(1) or Section 477 of the Companies Act.
In Liquidator, Janda Rubber Works Limited v. Collector of Bombay & Deputy Custodian of Evacuee Property (1950) 20 Cases 141 : AIR 1950 EP 204 the Liquidator of M/s. Janda Rubber Works Limited (in voluntary liquidation), which was the owner of M/s. Universal Rubber Works, made an application to the Company Court under Sections 216 and 222 of the Indian Companies Act, 1913, for a direction to custodian of evacuee property to remove his seal and not to take possession of the properties of the Company. The application was opposed by the Collector of Bombay, who was also Deputy Custodian, challenging the jurisdiction of the Company Court to pass such an order. He also claimed that Universal Rubber Works belonged to Mr. and Mrs.Thomas Janda, the two Directors of the Company and not to the Company itself. It was contended for the Custodian that Bombay Evacuee (Administration of Property) Act, 1949, bars the jurisdiction of the Court to interfere with anything done under the said Act and that in case of dispute as to ownership of the property, the Indian Companies Act has no power to adjudicate upon the dispute. The Division Bench of East Punjab High Court came to the conclusion that u/s 185 of the Indian Companies Act (which is now Section 468) Company Court has no jurisdiction to enforce the order against those persons other than those mentioned in Section 185 of the Indian Companies Act and that the transactions entered into by the Company with third parties are beyond the pale of jurisdiction of the Company Judge. The relevant observations are as follows.
In John Bros. v. Official Liquidator Agra Spinning and Weaving Mills Co. Ltd. (1936) 6 Comp.Cas. 219 it has been held that a company Judge has jurisdiction for the purpose of carrying out the liquidation, that is the realization of the assets of the company, and payment to the creditors, but he has no jurisdiction to enforce an order against persons other than those mentioned in Section 185. Judicial decisions of matters which may arise with third parties owing to transactions entered into by the liquidator are beyond the pale of jurisdiction of the company Judge and no order can be made with regard to these matters.
In In re East of England Bank (1865) 1 Eq. 219 it was held that Section 165 of the Companies Act, 1862 (Section 235 of the present Indian Act) does not apply as against an executor of a deceased director.
In In re Ilkley Hotel Co. (1893) 1 Q.B. 248 at page 250 Cave, J., observed:- "The functions of the Court are administrative and there is no ground for collecting from the language of the Acts and implied power to decide such a question as this."
The question to be decided in that case was whether a county Court Judge could decide a question as to title to property after a petition to wind up a company was presented, the question having arisen before the commencement of the winding up order between the company and a stranger.
From a perusal of these cases I am of the opinion that the Indian Companies Act does not give any power to the Court to adjudicate upon questions of title which are in dispute between a liquidator and third parties.
In Collector of Sabarkantha v Shankarlal Kalidas Patel AIR 1960 516 : (1960) Com Cases 491 the same view was reiterated and was held that when rent or damages for occupation and enjoyment of company property are due, an application u/s 185 of the Indian Companies Act would not lie.
In view of the principles emerging from Section 468 of the Companies Act as above, the point for consideration is whether the respondent can be said to be in the custody of Rs. 80,76,906/-. The answer must be in favour of the respondent and against the OL for the reasons that follow.
OL filed Company Application No.32 of 2005 u/s 477(2) of the Companies Act to summon Sri Dantuluri Raju - respondent herein, to examine him as regards the details of quarry lands owned by the company in liquidation, as to their extent, location, survey numbers etc., to direct respondent to deliver possession of quarry lands and to direct him to account for profits made out of quarry lands and reimburse the loss that is sustained by the company in view of the transfer/alienation by the respondent subsequent to commencement of liquidation proceedings. This Court issued summons on 09.02.2005. In obedience thereto, respondent appeared before this Court and he was examined by the Court on 30.10.2007. During the course of examination information was elicited from him regarding the public issue of 28,800 equity shares, the land owned by the company, the amount borrowed by the company from IFCI, IRBI and SEBI, and the details furnished in the statement of affairs. To a specific question whether respondent informed IFCI about the company having Acs.66.59, the respondent replied that the company has Acs.66.59 and by that date lands in Mallemadugu Village and Pasumanda in Chittoor were not registered in the name of the company. He also admitted that company owned Acs.34.00 of land in Khammam and Warangal Districts. Nowhere in the examination of the respondent in Company Application No.32 of 2005 it was suggested that he transferred/alienated the land to third parties for the purpose of mining or that he realized certain amounts by lease of the quarry lands. Therefore, it is rather doubtful whether the liquidator can maintain such an application having not taken any steps first to ascertain the value of the property or money which went into the custody of the Managing Director before winding up or immediately thereafter.
OL examined Company Paid Assistant as P.W.I and marked four documents. P.W.I refers to prospectus - Ex. A1, and report dated 16.03.2007 of the ADMG - Ex. A4, and deposed that respondent is liable to pay the claimed amount. Whether Exs. A1 and A4 support the case of OL? Ex. A1 - prospectus was issued sometime prior to 28.02.1995. As per the prospectus, the company in liquidation was incorporated on 21.09.1989 as Garvee Granites Private Limited and subsequently with effect from 19.08.1994 name of the company was changed as Garvee Granites Limited. The prospectus contains the details of quarry lands purchased by the company, the names of vendors and the location of the land. The details are furnished under two different heads, namely, i) details of quarry lands ii) quarry lands yet to be registered. Land in an extent of Acs.20.25 situated at Gudurupadu, Ammapalem, Beeravolu, Ravigudem, Arekodu and Kachirajgudem, was purchased under registered sale deeds and the title deeds were deposited with IFCI. Another extent of Acs.26.425 situated in those villages as well as other villages was also purchased by the company, but these lands were not registered. One has to read point 8 under the heading "management perception" of page 1 of the prospectus along with the details furnished at page 16 of prospectus. Reading together it cannot be said that the company or its Officials played any fraud or resorted to misrepresentation in revealing the actual land purchased. From the prospectus nothing would fall to support the case of the liquidator.
Coming to the report of the ADMG it must be mentioned that the lands were inspected by the ADMG on 07.03.2007 and 14.03.2007 along with surveyor from the Office of Tahsildar, Tirumalayapalem. During the inspection he found that in respect of survey No. 13 of Gudurupadu one K.Prabhakar obtained quarry lease and in respect of land in survey No.389/B of Beerolu Village M/s.Unique Enterprises were quarrying after obtaining lease from the Department of Mines & Geology. The rest of the lands in survey Nos.l6/A and 16/C of Gudurupadu, survey No.404 of Kachirajugudem Village and survey No.35/A of Arekodu village, there was illegal mining of black granite mineral. On enquiries the ADMG found that quarrying was done seven years prior to date of inspection. From these the ADMG ascertained the value of the mineral which was extracted legally as Rs. 98,93,287/- and the value of the mineral illegally mined as Rs. 32,17,060/-. Various details were furnished in a separate detailed report.
As per detailed report of ADMG, the lands in survey Nos. 18/A, 18/B, 18/C, 16 and 13 of Gudurupadu, Khammam Rural Mandal, admeasuring Acs. 17.95, the land in survey No. 35/A of Arekodu admeasuring Ac. 1.425, the land in survey No.404 of Kachirajugudem village admeasuring Acs.9.20 and land in survey No.389/B of Beerolu Village admeasuring Ac. 1.20 belong to the company in liquidation. As noticed by the inspecting team, insofar as Gudurupadu lands there was illegal mining in survey N0.I6/A and 16/C, and in survey No. 35/A of Arekodu village and in survey No. 404 of Kachirajugudem also there was illegal mining. The land in survey No. 13 of Gudurupadu village was leased out to K.Prabhakar and the land in survey No. 389/B of Beerolu village was leased out to Proprietor of M/s.Unique Enterprizes, Sri E.Anjaneyulu. The report nowhere mentions that illegal mining was carried out by the company in liquidation or by its Officials. Indeed, as observed by the ADMG, the quarrying was carried out seven years prior to date of inspection. Except calculating the value of the illegally mined mineral, there is no finding in the report of the ADMG that illegal mining was carried on by the Officials of the company or by the third parties with the connivance of the company. From the report of the ADMG marked as Ex.A4 it is not at all possible to infer that the amount claimed in the application was misappropriated by the respondent without showing the same in the account books. The report of the ADMG shows that the lessee K. Prabhakar in respect of land admeasuring 1.00 Hectare in survey No. 13 operated the quarry for a period of seven years eleven months and dispatched a quantity of 1,485.185 M3. The report also gives breakup for nine years commencing from 1998-1999 to 2006-2007. The Company was wound up on 20.09.2001 and thereafter as per the report of the ADMG an amount of Rs. 43,25,602/- was the value of the black granite extracted from the land in Survey No.13 leased out to K.Prabhakar. Similarly, for the period from 2002-2003 to 2006-2007 Sri E. Anjaneyulu, Proprietor of M/s.Unique Enterprizes in whose favour quarry lease was given, worked the Quarry and black granite of the value of Rs. 5,44,644/-was extracted from the land in Survey No. 389/B of Beerolu Village. Except these two items, in all other lands there was illegal quarrying. In the absence of any clinching evidence to show that it is the Company or the respondent as its Managing Director who resorted to illegal mining and extracted black granite of considerable value, it is not possible to draw any inference that respondent is liable for the amount claimed. Therefore, the application u/s 468 of the Companies Act is not maintainable. However, if the Liquidator is able to get the information regarding those persons who illegally conducted mining operations in the lands belonging to Company in liquidation, it is always open to the Liquidator to file appropriate application against those persons and claim the money.
This Company Application is devoid of any merit, and the same is accordingly dismissed.