Skip to content


Kothari (Madras) Ltd. Vs. Myleaf Tobacco Development Co. Pvt. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Case NumberCompany Petition No. 7 of 1981
Judge
Reported in[1985]57CompCas690(Kar)
ActsCompanies Act, 1956 - Sections 454, 454(1), 454(2), 454(3) and 454(5A)
AppellantKothari (Madras) Ltd.
RespondentMyleaf Tobacco Development Co. Pvt. Ltd. and anr.
Excerpt:
.....or person against whom claim has been made, appeal filed by insurer is not maintainable. - the official liquidator informed the advocates as well as the ex-directors who are residents in india that their request for extension of time for filing statement of affairs could not be considered as they did not mention any specified period for which the extension was required. official liquidator [1979] 49 comp cas 81 having regard to the use of present perfect tense in clause (a) of sub-s. all directors of a company stand on the same footing and their duties, responsibilities and obligations are uniformly controlled by the provisions in the act as well as the articles of association of the company concerned. it is true, in this country as well as in the united kingdom and elsewhere, good..........and chandrappa informed the official liquidator that they were under no obligation or duty to file a statement as they were no longer the directors of the company. but, they however, offered to gather whatever information was still available and place the same before the court and for that purpose they would require some time. the official liquidator informed the advocates as well as the ex-directors who are residents in india that their request for extension of time for filing statement of affairs could not be considered as they did not mention any specified period for which the extension was required. their attention was also invited to the provisions of s. 454(2)(a) of the act under which there was an obligation to file the statement of affairs with the official liquidator not.....
Judgment:

Chandrakantaraj Urs, J.

1. This matter arises out of the report filed by the official liquidator attached to this court in O.L.R. No. 171 of 1982, made in Company Petition No. 7 of 1981.

2. In the report under consideration, the official liquidator has prayed of directions as to whether he should file a criminal complaint under s. 454(5A) of the Companies Act, 1956 (hereinafter referred to as 'the Act'), against the ex-directors of the company mentioned in para. 3 of the report for non-compliance with the requirements of s. 454(1) of the Act. The persons mentioned in para. 3 of the report and described as directors are :

1. Sri D. L. Batcheler,15-A, Perring Avenue,Farm Borough, Hants,Hampshire,England, U.K.2. Sri G. Basappa,S/o. Karibasappa,Landlord,Poddamgadi,Mayakonda Post.3. Sri K. S. Chandrappa,S/o. K. S. Mahadevappa,Kasipura Village,Davanagere Taluk.

3. The facts which are required to be stated and extracted in the report under consideration are as follows :

4. In Company Petition No. 7 of 1981, this court by an order date April 15, 1981, directed winding up M/s. Myleaf Tobacco Development Co. P. Ltd. on a creditor's petition. That order was made ex parte the respondent company or any other creditors, after due publication in the newspaper of the filing of the petition for winding up. The winding up order was received by the official liquidator on April 28, 1982. In pursuance of the provisions contained in s. 454 of the Act, the ex-directors of the company in liquidation were required to submit to the official liquidator a statement of the affairs of the company in the prescribed from verified by an affidavit and containing the required particulars. The statement ought to have been filed within 21 days from the date of the winding up order or within such extended time not exceeding three months from that date as the official liquidator or the court may, for the reasons specified, appoint. Notices came to be issued by the official liquidator to the three directors on May 10, 1982, requiring them to submit the statement of affairs. Notices issued to D. L. Batcheler at his local address at Bangalore and to G. Basappa were returned undelivered, while K. S. Chandrappa acknowledged the notice. On August 19, 1982, D. L. Batcheler was notified at his address in the United Kingdom. That notice was received by him; but he did not send any reply to the aforementioned notice. However, the notices issued to G. Basappa and K. S. Chandrappa resulted in a communication from M/s. Jayaram & Jayaram, Advocates, Bangalore, dated June 1, 1982, by which the said Basappa and Chandrappa informed the official liquidator that they were under no obligation or duty to file a statement as they were no longer the directors of the company. But, they however, offered to gather whatever information was still available and place the same before the court and for that purpose they would require some time. The official liquidator informed the advocates as well as the ex-directors who are residents in India that their request for extension of time for filing statement of affairs could not be considered as they did not mention any specified period for which the extension was required. Their attention was also invited to the provisions of s. 454(2)(a) of the Act under which there was an obligation to file the statement of affairs with the official liquidator not only on the continuing officers of the company but also on the officers who were in charge of the company. It is further to be noticed that one of the ex-directors, G. Basappa, had given a written statement to the representative of the official liquidator on June 18, 1982, stating that he was only a nominal director and he was not in charge of the affairs of the company. Similarly, the other director, K. S. Chandrappa. Also gave a written statement on July 22, 1982, stating that he was not aware of the company and that D. L. Batcheler was looking after the affairs of the company. It is in the above circumstances the official liquidator has moved this court by the report under consideration, dated September 25, 1982, for filing a complaint before this court for an offence against the ex-directors in terms of s. 454(5A) of the Act.

5. Notice of the report was directed to be served on the ex-directors. Basappa and K. S. Chandrappa, the two ex-directors, entered their appearance through counsel and filed objections to the report on November 17, 1982. In the objection statement they have state were not actually in charge of the day-to-day administration of the company and that D. L. Batcheler, who was the managing director and the chairman of the company, was entrusted with the day-to-day administration of the company in liquidation. They have also asserted that they resigned from their positions as directors with effect from December 1, 1980, and filed Form No. 32 with the Registrar of Companies in Karnataka to that effect. They also asserted that D. L. Batcheler had left the country without any intimation to the Board and without securing its consent and without leaving any information about his whereabouts. In these circumstance, they co-operated with the official liquidator who had been directed to take charge of the company as they had no option but to exert themselves in order to see what they could do to provide the information required by the official liquidator. They have also asserted that the departure of Batcheler has exposed the company to serious financial and other difficulties and with the commencement of the winding-up proceedings, his absence has added to the difficulties which existed even at the time of his departure. They have not, however, spelt out the exact time of his departure. They have further asserted that they were never in charge of the affairs of the company nor in possession of the files, papers and documents of the company. They, however, approached a former employee and with his co-operation were able to secure for the representative of the official liquidator certain files and papers which were forwarded to the official liquidator under cover of their advocate's letter dated July 7, 1982, a copy of which is produced at annexure 'B' to the objection. The ex-directors on record have asserted that they were under no obligation to secure the records and books to the official liquidator as they were not in active charge of the affairs of the company. When they produced the documents and papers, they did so with the object to help and co-operate and not in discharge of any obligation imposed upon them under s. 454, but in an effort to assist the court to secure the same. Therefore, they have contended that D. L. Batcheler was the only person in charge of the company's affairs as chairman and managing director and they were under no obligation to file the statement of affairs and appropriate action may only be directed against D. L. Batcheler as prayed for by the official liquidator and not against them.

6. In these circumstances, they pray that they should not be exposed to any penal proceedings. The objection statement has been reiterated in the affidavits filed by Chandrappa, Basappa and one N. R. Krishna Murthy, who is described as a former employee of the company in liquidation. I will advert to the aforementioned affidavits later in the course of the order.

7. In the circumstances stated above, Sri S. Vijayshankar, learned counsel for the official liquidator, has contended that having regard to the plain language of clause (a) sub-s. (2) of s. 454 of the Act, the ex-directors are bound file the statement of affairs in respect of a company ordered to be wound up notwithstanding that such directors were not directors of the company on the date of the winding up order when they have been called upon to do so by the official liquidator. The thrust of the argument is that the limitation that can be read into the exercising of power by the liquidator in respect of classes of persons enumerated in cls. (b), (c) and (d) of sub-s. (2) of s. 454 of the Act not available to the persons covered by sub-clause (a) of the said sub-section. In order to appreciate the contention, it is useful to extract sub-ss. (1) and (2) of s. 454 of the Act which read as follows :

'454. Statement of affairs to be made to official liquidator. - (1) Where the court has made a winding up order or appointed the official liquidator as provisional liquidator, unless the court in its discretion otherwise orders, there shall be made out and submitted to the official liquidator a statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, namely :-

(a) the assets of the company, stating separately the cash balance in hand and at the bank, if any, and the negotiable securities, if any, held by the company;

(b) its debts and liabilities;

(c) the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts, and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given :

(d) the debts due to the company and the names, residence and occupations of the persons from whom they are due and the amount likely to be realised on account thereof;

(e) such further or other information as may be prescribed, or as the official liquidator may require.

(2) The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the persons who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the official liquidator, subject to the direction of the court, may require to submit and verify the statement, that is to say, persons -

(a) who are or have been officers of the company;

(b) who have taken part in the formation of the company at any time within one year before the relevant date;

(c) who are in the employment of the company, or have been in the employment of the company within the said year, and are, in the opinion of the official liquidator, capable of giving the information required;

(d) who are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates ...'

8. From the plain language of the sub-sections, it is clear that 'unless the court otherwise direct' as in sub-s. (1) or 'subject to the direction of the court' as in sub-s. (2), law imposes an obligation on the persons mentioned in sub-s. (2) of s. 454 to submit the statement of affairs, except when such of the persons as are mentioned in cls. (b), (c) and (d) of sub-s. (2) are protected by the period of limitation imposed on their obligation. Learned counsel has drawn my attention to some of the rulings of the High Courts in respect of s. 454(2) of the Act and it is useful to notice them. In the case of Sipso Agencies (Pvt.) Ltd. v. Gajraj Singh [1978] 48 Comp Cas 30, a learned single judge of the Delhi High Court held that ex-directors who were directors even prior to one year from the relevant date (date of appointment of provisional liquidator or the date of winding up order as per sub-s. (8) of s. 454 of the Act) were required to file the statement of affairs. He reached that conclusion though in an earlier case he had taken a more liberal view that one year limitation ought to be extended to persons mentioned in clause (a) of sub-s. (2) of s. 454 of the Act. In that circumstance, he directed some of the directors who had ceased to be directors who had ceased to be directors some five or six years before the relevant date to make out a statement of affairs. In such director appealed against that order to a Division Bench of that High Court (see Devinder Kishore Mehra v. Official Liquidator [1980] 50 Comp Cas 699). Agreeing with the decision of the Calcutta High Court in the case of Sarkar Estates (P.) Ltd. v. Gostho Behari Sarkar [1967] ILR 1967 (1) Cal 360, the Divisional Bench of the Delhi High Court came to the following conclusions (headnote) :

'The statement of affairs postulated by s. 454 of the Companies Act, 1956, is the very basis of winding-up proceedings and it is not proceeding which can be called a fact-finding enquiry or a fishing enquiry as it is to obtain as full an information as possible, not piecemeal information, which is to be filed by a person who is in a position to do so and not by persons who are or were directors or officers in name or have never had opportunity to know the affairs of the company, and it is for this reason that the official liquidator is to obtain the directions of the court before calling upon any one to file the statement ......

Although on a prima facie analysis of s. 454, there is no conflict between the categories of persons falling in the category under clause (a) and those under clause (d) of s. 454(2) and the ex-directors of a company who resigned even more than one year before a winding-up order could, in appropriate cases, be directed to submit statement of affairs by the court, the court should see as to who is capable of filing the statement if the exercise is to have a meaning, and despite knowing the incapacity or incapability of a person, directing him to file a statement as one who may be in a likely position to file the statement, would not be the proper approach ....

When a person has been held not to be in a position to have access to the books of the company ever since he was ousted from management, calling upon him to file the statement cannot be justified unless a clear-cut finding is given that any one of such persons concerned is in a position or capable of filing the statement. Such a finding on enquiry by the official liquidator is an imperative prerequisite to give directions under s. 454, on a motion by the official liquidator.'

9. From the above enunciation with which I am in full agreement respectfully, it is clear that the ex-directors with whom we are concerned can succeed only if, on facts, they can demonstrate that they are not in a position to file the statement of affairs and not otherwise. They cannot succeed on the bald plea that they had ceased to be directors more than one year prior to the date of winding-up order. Similar is the view taken by a Division Bench of the Patna High Court in the case of Lakshman Narayan Arora v. Registrar of Companies [1980] 50 Comp Cas 536. A Division Bench of the High Court of Kerala has also taken a similar view Poomuli Manakkal Anutan Nambudiripad v. Official Liquidator [1979] 49 Comp Cas 81 having regard to the use of present perfect tense in clause (a) of sub-s. (2) of s. 454 of the Act.

10. Having agreed with the conclusion reached by the Division bench of the Delhi High Court, I must now examine the facts of the case as pleaded and supported by separate affidavits of the ex-directors and a former employee of the company. Sri A. N. Jayaram, learned counsel for ex-directors, does not dispute that the two former directors were 'officers' of the company. He only claims that they were nominal directors who were not actively associated with the day-to-day affairs of the company in liquidation. In that position it is claimed that these former directors are not in a position to file a proper statement of affairs. He firmly placed reliance on the observations and conclusions of the Division Bench of the Delhi High Court which have been extracted earlier in the course of this order.

11. There is also no dispute that the official liquidator has conducted some preliminary enquiry before moving this court by the report under consideration. It is also not in dispute that the former managing director is not available in the country. Since when he is not available in the country is left blissfully vague in the affidavits of the directors. The court is compelled to draw an inference from the material placed before it.

12. I must first deal with the argument that Chandrappa and Basappa were only nominal directors. The Act does not provide for a nominal director. All directors of a company stand on the same footing and their duties, responsibilities and obligations are uniformly controlled by the provisions in the Act as well as the articles of association of the company concerned. It is true, in this country as well as in the United Kingdom and elsewhere, good names are inducted on to the board of directors to attract capital and infuse confidence in the company promoted. Such good names can turn sour when the company is mismanaged and attracts the penal provisions of the Act and all the directors are liable. Therefore, a wise man will keep away from inducement of a directorship, if he is not going to be diligent about his duties and functions as a director. Examples are not lacking where good men who lent their names nominally have exposed themselves to ridicule and prosecutives. In the light of this inescapable liability under law, the assertion made in the affidavits have to be examined.

13. In all three affidavits filed, it is admitted that the company ceased to function commercially in or about the year 1975. There appears to have been legal proceedings against the company in liquidation to recover secured loans by the State bank of Mysore, Davanagere, as is clear from the affidavit of Krishna Murthy, a former employee of the company. Chandrappa has asserted that he was induced to become a shareholder and a director in order to enable the company to file statutory returns which were filed admittedly up to December, 1980, when they assigned their positions as evidenced by annexures 'A' and 'B' to the objection statement. None of the three affidavits is clear as to when the managing director left the country and settled down in England. That he is now in England is evident from the report of the official liquidator. Therefore, it is reasonable to infer on the admissions of the ex-directors that they became directors after Batcheler left the country or about that time with their eyes open to the situation of the company's affairs.

14. Basappa has merely adopted what Chandrappa has asserted. Krishna Murthy's affidavit is more detailed as he claims to have kept the books and also acted as manager of the company in question for some time and ceased to be an employee when he was not paid his salaries. He has not disclosed when or in what month and year he ceased to be an employee of the company. Chandrappa and Basappa have repeatedly asserted that they are simple agriculturists who were at all times ignorant of the affairs of the company and pass the entire blame of mismanagement on to Batcheler, the managing director. All the affidavits conceal more than what they reveal. One has to be wary and cautious in accepting such affidavits.

15. On receiving the notices from the official liquidator, Chandrappa and Basappa caused a reply to be issued through counsel baldly denying their legal ability to file the statement of affairs. After meeting the representative of the official liquidator, they have shown some diligence and change of heart. They located the ex-manager Krishna Murthy, and recovered from him certain books and records of the company in liquidation and handed them over to the official liquidator with a covering letter from their counsel. The list attached to that letter and a copy of that letter is at annexure 'B' to the statement of objections. In the letter they have taken the stand that from the available records and Books, they cannot file a true and proper statement of affairs and by reason of their non participation in the day-to-day affairs of the company, they are not liable to file the statement of affairs besides by reason of their ceasing to be directors since the middle of December, 1980. There is no ascertain that they made any attempt to prepare a statement of affairs from the available records and books, much less any evidence of such an attempt. A perusal of the list of books and records and annexure 'B' to the statement of objections is clearly indicative that a statement of affairs giving the particulars mentioned in sub-s. (1) of s. 454 of the Act can be prepared and filed, without filing to notice that balance sheets of the company have been filed in the year 1980 by the ex-directors. No doubt, Krishna Murthy ex-manager, asserts that the balance-sheets were all based on the figures of the previous year. If for five years there was no commercial transaction in the company since 1975, there would not be any inadequacy if statement of affairs is filed on the basis of the balance-sheet last filed and other records available. The court is satisfied on a perusal of the list of books and records that there is enough material to prepare a statement of affairs with the assistance of a chartered accountant detailing the information required under sub-s. (1) of s. 454 of the Act.

16. It was feebly contended by Mr. A. N. Jayaram that sub-s. (3) of s. 454 is a bar for calling for a statement of affairs now. I do not think that argument is well founded. This question has been well discussed by the learned single judge of the Calcutta High Court in the case of Sarkar Estates (P.) Ltd. ILR [1967] 1 Cal 306. The relevant observation is at para 32, which is as follows :

'This aspect of the matter as to jurisdiction, however, agitated my mind considerably even after judgment was delivered, for one way of looking at the problem after the introduction of clause 5(A) by way of amendment is that when the winding-up court now has the power to allow the delinquent person to put an end to the default by allowing him to file a statement of affairs after the trial, it is immaterial whether it is done at the end of the trial or before the compliant or during the progress of the trial.'

17. Following the above enunciation of the law, I must hold in the light of the discussion of the facts of the case, that the two ex-directors are liable to make out a statement of affairs with the help of the records and books now available with the official liquidator within two months from today failing which the report of the official liquidator shall be treated as a complaint under sub-s. (5A) of s. 454 of the Act and penal proceedings shall have to commence.

18. Further orders will be made only after there has been compliance or failure of compliance with the direction as above.

19. At this stage there will be no order as to costs. If there is compliance with the direction given to the ex-directors, the official liquidator shall report the same with his comments to this court and, thereafter, appropriate final orders will be made on this report. However, the matter will be called in court after 60 days from today if there has been no compliance by them.

20. This order is made ex parte Bachelor who resides outside the jurisdiction of this court.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //