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Official Liquidator of Vinod Motors Pvt. Ltd. (In Liqn.) Vs. Hindustan Lever Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Appeal No. 456 of 1973 and Civil Petition No. 30 of 1968
Judge
Reported in11(1975)DLT297
ActsCompanies Act, 1956 - Sections 477(1)
AppellantOfficial Liquidator of Vinod Motors Pvt. Ltd. (In Liqn.)
RespondentHindustan Lever Ltd. and ors.
Advocates: Asha Goel and; Rajender Dhawan, Advs
Excerpt:
.....- - , which is claimed to be indebted to company, in liquidation as well as sbri vinod prasad and shri radha kishan, who are the ex-managing director and one of the directors of the company. this, in short, is the substance of the application as well as the prayer therein. if the person happens to be a juristic person like m/s hindustan lever ltd. the whole purpose of the section is to provide a means to recover the books and papers of the company as well as debts due to the same. in the result, this application cannot proceed against the first responlent, and i also cannot proceed against any director or official of the first respondent the application mast, thereforee, fail qua the first respondent......5th february, 1968, and the order for compulsory winding up was passed on 8th november, 1968. the official liquidator moved the present application, which is under section 477 and 548 of the companies act, 1956, on 11th july, 1973, which is about four years and 8 months after the winding up order was passed. as respondents, the official liquidator has.joined m/s hindustan lever ltd., which is claimed to be indebted to company, in liquidation as well as sbri vinod prasad and shri radha kishan, who are the ex-managing director and one of the directors of the company. the claim in the application is that the accounts of the company show a debit balance of the rs. 6, 56.25, against m/s hindustan lever, ltd., as on 8th july, 1966. the official liuqidator had sent a notice on 9th june, 1969,.....
Judgment:

D.K. Kapur, J.

(1) M/S Vinod Motors (P) Ltd., is a company which is being wound up by the Court. The winding up petition was filed on 5th February, 1968, and the order for compulsory winding up was passed on 8th November, 1968. The Official Liquidator moved the present application, which is under Section 477 and 548 of the Companies Act, 1956, on 11th July, 1973, which is about four years and 8 months after the winding up order was passed. As respondents, the Official Liquidator has.joined M/s Hindustan Lever Ltd., which is claimed to be indebted to company, in liquidation as well as Sbri Vinod prasad and Shri Radha Kishan, who are the ex-managing Director and one of the Directors of the company. The claim in the application is that the accounts of the company show a debit balance of the Rs. 6, 56.25, against M/s Hindustan Lever, Ltd., as on 8th July, 1966. The Official Liuqidator had sent a notice on 9th June, 1969, to the first respondent which was replied to on 26th June, 1969, the reply being Annexure 'C' to the petition. In the reply, the first respondent stated that nothing was cue to the company as the bills had been settled in full The Oficial Liquidator claims that a sum of Rs. 6156.25, shown in the books of the company carries interest at the rate of 12 persent per annum and the amount due from M/s Hindustan Lever Ltd., now stood at Rs. 11,199.25. This is the claim qua respondent No. 1.

(2) As regards respondents Nos. 2 and 3, who are directors of the company, it is claimed that they had faield in their duty to effect recovery of the amount from the first respondent. The case against these respondents is that they did not do anything to make any recovery of the amounts from 2nd July, 1966 to 5th February, 1968, when the winding up proceedings were commenced. It is claimed that they were guilty of culpable negligence with regard to the amount due from ^ M/s. Hindustan Lever Ltd. The application alleged that the reply of respondent No. 1 showed that respondents Nos. 2 and 3 had misapplied or retained the amount due from the first respondent and had thus become accountable and liable to pay the same. On this basis, the Official Liquidator prayed that all the three respondents should be summoned and examined on oath under Section 477 of the Companies Act, 1956, and should be ordered to pay the sum of Rs. 11,199,25, to the applicant. An additional prayer was that the second and the third respondents be summoned under Section 543 of the Act, and the Court should examine their conduct and they should be ordered to pay the sun of Rs. Ii, to the applicant. If necessary, these respondents, i.e, the ex-directors should be found guilty of breach of trust and should be ordered to be proceeded with in accordance with law. This, in short, is the substance of the application as well as the prayer therein.

(3) After this application was instituted, I ordered notice to issue to respondent No. 1 alone; that respondent has been served and has replied to the petition. As a preliminary objection, it has been allged that the application of the Official Liquidator is barred by time and thereforee no orders should be passed agains, the answering respondent. Then, the application has been replied on merits, and it is claimed that the amount claimed by the Official Liquidator his been settled in full and no amount is due. from the first respondent. It is further alleged that there are no details concerning the amounts alleged to be due. It also alleged that the books of account of the company in liquidation were not properly kept or maintained by the company.

(4) The next question which arises for consideration is, how the present case is to proceed after the first respondent has filed a reply denying any liability to pay and claiming that the amount is barred by lime. One answer to this problem is that the official Liquidator '' should be directed to institute proceedings by way of suit or application under Section 446 of the Companies Act, 1956, against the first respondent and leave the Court to decide whether the first respondent is indebted. That however, does not satisfactorily answer the question as to how this particular petition is to be disposed of, especially in respect of the fift respondent. The present petition is only under Section 477 of the Companies Act, 1956, against the first respondent as that respondent is not amenable to the jurisdiction of this Court under section 543 of the Act. There is no limitation of period prescribed in the Act for applications under Section 477. The application, cannot thereforee, be treated as being barred by time. On the other hand, there is a difficulty in proceeding under Section 477 in respect of M/s Hindustan Lever Ltd. This difficulty alises because of the language used in Section 477. The power of the court to summon a witness is set out in sub-section (1) of Section 477 of the Act. That sub section reads as follows :-

477.Power to summon person suspected of having property of company etc. (1) The Court may, at any time after the appointment of a provisional liquidator or the making of a winding up order, summon before it any officer of the company or person known or suspected to have in his possession any property or books or papers, of the company, or known or suspected to be indebted to the company, or any person whom the Court deems capable of giving information concerning the promotion, formation, trade, dealings, property books or papers, or affairs of the company, '

This power to summon is restricted to the particular persons mentioned in the sub-section. Those persons are officers of the company, or persons known or suspected to have in their possession property or books or paper of the company or persons known or suspected to be indebted to the company, or persons whom the Court deems capable of giving information concerning the promotion, formation, trade, dealings, etc. of the company. This shows that there are three catagories of persons, who can be examined before the Court privately. Those catagories are (1)officers of the company, (2) persons indebted to the company and (3) persons capable according to the court of giving information concerning the promotion, formation and dealings, etc., of the company. The question for consideration is : Does M/s Hindustan Lever Ltd., fall within any of these catagories Obviously, the first respondent is neither an officer, nor a person capable of giving information, but, is a person alleged to be indebted to the company. In fact, the books of the company in liquidation, show that M/s Hindustan Lever Ltd., is indebted to the company. thereforee, theoratically, the first respondent can be summoned under Section 477 of the Act. The difficulty in summoning the first respondent however, lies in the fact that the court can only summon a person and examine him on oath. This is what sub-section (2) of section 477 states : the Court may examine any officer or person so sommoned on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories ; and may in the former case, reduce his answers to writing and require him to sign them.' thereforee, it is inherent in Section 477/, that the person to be summoned must be a person capable of being examined on oath. If the person happens to be a juristic person like M/s Hindustan Lever Ltd., it cannot be examined on oath. This point seems to be so obvious, that it should not require any discussion at all. However, the Official Liquidator has moved a number of applications under Section 477 of the Companies Act, 1966, praying for the examination of limited companies and other legal entities, who are non-physical, but are legal personalities by statutory fiction Such persons can obviously not be examined on oath and, thereforee, equally obviously, cannot be summoned under Section 477 of the Act. This would mean that these proceedings cannot continue in respect of M/s Hindustan Lever Ltd, in the form in which the application has been instituted.

(5) Another alternative has been urged on behalf of the applicant as an answer to the above objection. It is urged that even if the company cannot be examined on the ground that it is incapable of being examined on oath, some officer or director or other official connected with the working of the first respondent can be examined in its place and on its behalf. This submission needs even closer examination. It is to be noted that the three categories, I have mentioned above, include persons who can give information concerning the propmotion, formation, trade, dealings, documents, papers or affairs of the company. The counsel for the Official Liquidator urges that this means that a person connected with the affairs etc., of the allegedly indebted company can also be examined. Such a construction of Section 477(1) is not possible. Reference to the 'company' contained in that sub-section means a company which is being wound up by the Court and not that company which is claimed to be the debtor. Although the Section does not specically say which company is being referred to is the sub-section, I do not think that the woid 'company' mentioned in Section 477 can be read to mean the company which is in debt to the company in liquidation. The whole purpose of the Section is to provide a means to recover the books and papers of the company as well as debts due to the same. It also enable the Court to get information where necessary. Thus, the only construction possible on Section 477(1) is that the person to be examined must be an officer of the company in liquidation, or a person indebted to that company, or a person who can give the requisite information specified in Section 477(1), concerning the company in liquidation. Now, viewed from this angle, an officer of M/s Hindustan Lever Ltd., or a director thereof, cannot he classified as an officer of the company in liquidation, or a person indebted to the company. He may, however, come in the category of a person capable of giving information concerning the formation, promotion trade, dealings, property, books or papers, or affairs of the company, which is the last part of sub-section (1) of Section 477 of the Act. Thus, an officer, director, or officer^ of M/s Hindustan Lever Ltd., could be examined for the purpose of getting such information. But, what is the purpose of getting such information If such a person comes and states before the Court that the books of M/s Hindustan Lever Ltd, do show any debt owed to the company in liquidation, no positive order can be passed at all. The reason for this is that the maximum power that the Court has, on the examination of a person on cath, is to pass an order under subsection (5) against the person who admits the debt. Thus, if a debtor appears before the Court and admits his liability, on order can be passed under Section 477(5) on the basis of the admission directing the plyment of the amount Such an order cannot be passed against an officer of a company who admits that the company is indebted. thus even if an officer of M/s' Hiadustan Lever Ltd.,was summoned under section 477 and gave information leading to the conclusion that, that company was indebted to company in liquidation, the Court would be powerless to pass an order directing M/s. Hindustan Lever Ltd.. to pay any amount to the Official Liquidator. This is without reference to the written claim of M/s. Hindustan Lever Ltd., that the amount in question is barred by them. There is some contreversy before me in this type of cases as to whether the limitation peried prescribed by the Limitation Act can apply to cases under Section 477(5) of the companies Act, 1956. I, however, do not propose to deil with the question of limitation , least isn, this judgment, as it is not necessary for this case.

(6) The result of the above analysis of the situation would show that an order directing the examination of any officer of M/s. Hindustan Lever Ltd, would be completely ineffectual, it would lead to no po five result and would be mere information in the bands of the Official Liquidator such information could at most lead the Official Liquidator to institute other proceedings again t M/s. Hindustan Lever Ltd., for the recovery of the alleged debt. But, those proceedings can be instituted even without this information The facts stated above shaw that the Official Liquidator is already in possession of information showing that M/s. Hindustan Lever Ltd , is indebted to the company in liquidation ; that information is in the form of entries in the books of account of the company being wound up. That information could have been used by he Official Liquidator to institute appropriate proceedings against M/s. Hindustan Lever Ltd., by way of suit or application under Section 446 of the Companies Act, 956. There is, thereforee, no reason at all for the Official Liquidator to seek any fur ther information. or seek to eximine any officer or director or other official of M/s Hidustan Lever such an examination would be without benefit either to the applicant or to any other person.

(7) It is necessary also to say something about Section 477 of the Companies Act, 1956, for the purpose of completing this judgment. The said Section has been amended with effect from 28th December, 1969') by Act No. 65 of 1960, so as to correspond with the provisions confined in Section 36 of the Presdency Town Insolvency Act, 1909. The purpose of that Sction as occurring the Presidency Town In- solvfncv Act, 199, has always been understood to provide a means for the creditor of an insolvent or official assignee, to obtain information concerning the debts due from the insolvent. The same principle is applicable to Section 47 of the Companies Act, 1956. The position of the Official Liqudator is that of a creditor as far as the company in liquidation is concerned. He sometimes does not even have the books of account and he has no personal knowledge of the dealings of the company which is being wound up. He has to rely on the statement occurring in the books of account, when he has them, but he has no mears to prove the conectness of those entries That is because of lack of personal knowledge concerning the transactions incorporated in the books The Liquidator cannot often obtain the necessary evidence to establish a claim against a debtor in Court, because he is unable to calllhese persons who arc fully aware of the transactions, as witnesses. As an example, it may be mentioned that generally, directors or other officers of a company being wound up are fully aware of the transactions entered into the books of the company, but these are the very persons against whom the * official Liquidator is seeking to enforce, claims under Section 543 of 542 or other provisions of the Companies Act, 1956 Tnus, the Official Liquidator is placed in the difficult position of being, on the 0 one hand an agent or representative of the company, and on the other, also a person responsible for taking action against delinquent directors. Often, these very delinquent directors are the persons, who are solely able to depose about the transactions in dispute. The Official Liquidator being placed in an impossible position is not able to get the requisite information from these delinquent director and often, these very directors are responsible for mis handling the affairs of the company. The exemployees of the company are another class of persons, whom the Official Liquidator may lure to, but these persons also have, by the time the Official Liquidator comes on the scene, left the employment of the company being wound up and have gone celswhere, or have become untraceable. This means that the Official Liquidator his no means to get the necessary evidence for proceding against the debtors of the company. For this purpose. Section 477 is available to him, for it enables the Court to examine the alleged debtors and also to get information concerning the company's trail-actions If the official Liquidator wanted to get such information from M/s Hindustan Lever ltd., he could have moved an application seeking to summon so ne of the directors or officials of the company and thus got the necessary information As it happoenes. he has got the in ormation in his. records already, but has not instituted proceedings against the first respondents. If an application to examine the officials of the first respondent had been moved, say, soon after the receipt of the denal of its Hability, which was by way of a letter written to the Official Liquidator in 1969, the Court would certainly have helped the official Liquidator o get the requisite information by summoning suitable officials of M/s Hindustan Lever Ltd. However, a period of above four years had elapsed since the reply was received from the first respondent. This means that there is now no occasion for snmmoning any one. In the result, this application cannot proceed against the first responlent, and i also cannot proceed against any director or official of the first respondent the application mast, thereforee, fail qua the first respondent.

(8) There remains the case cf the second and the third respondents. The case against them is based on two counts. The first is that they were negligent in not recovering the amount before the company was ordered to be wound up. I personally cannot see how they were negligent in not recovering the money as the claim was not barred by time. Hence, this claim is without substance. The second line of attack is that they, respondents Nos. 2 and 3, had received the money, but had not paid the same to the company. This, if true, would certainly by show that the second and the third respondents had been guilty of breach of trust. I would have had no hesitation in proceedin against the second and the third respondents on this basis. The learned counsel for the Official Liquidator states that other proceedings had been taken against the second and the third respondents under Sections 542 and 543 of the Companies Act, 1956, in which a number of allegations against the second and third respondents save been clubbed together, and thereforee, it would be very convenient that this claim should also be enquired into in those proceedings. I fully agree with this submission. In view of the pendency of these proceedings, I find it unnecessary to issue any summons to the Second and the third respondents. These observations are without prejudice to any case that the applicant may make out in the case under Sections 542 and 543 of the Act. As submitted by the counsel for the Official Liquidator, the purpose of joining respondents Nos. 2 and 3 to this proceeding, was to have the entire case regarding the amount claimed from M/s. Hindustan Lever Ltd,, before the Court at one and the same time. Thus, either the first respondent was debtor, or the second and the third respondents had received the money but had not credited the same to the company. In view of the fact that the application cannot proceed against the first respondent it becomes unnecessary to proceed against the second and the third respondents in this ease, as they are being proceeded against the respect of the same amount in another pending proceeding:

(9) With these observations, which are without prejudice to the pending claim against the second and the third respondents, who have not been given notice at all in this case and have not been summoned, I dismiss this application. I leave the parties to bear their own costs:


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