Skip to content


Official Liquidator of R.S. Motors (P) Ltd. (In Liquidation) Vs. Jagjit Singh Sawhney and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCriminal Appeal No. 23 of 1970
Judge
Reported in[1974]44CompCas381(Delhi); ILR1974Delhi243
ActsCompanies Act, 1956 - Sections 454(5A)
AppellantOfficial Liquidator of R.S. Motors (P) Ltd. (In Liquidation)
RespondentJagjit Singh Sawhney and anr.
Advocates: Rajeev Behl and; M.S.Vohra, Advs
Cases ReferredRegistrar of Companies v. Orissa China Clay Refinery Co. Private Ltd.
Excerpt:
.....suggest that the accused could not comply with the provision of law is a reasonable excuse. if the books of the company are not available then it can be urged on behalf of the directors that there is a reasonable excuse for not submitting the statement of affairs of the company ordered to be wound up. the reasonableness of the excuse of the accused for not furnishing the statement of affairs would very from case to case, and would depend entirely on the kind of situation that the directors found themselves in when called upon to submit the statement.;where, as in the instant case, on account of the seizure of the record of the company by the police and the lack of adequate opportunity to the accused to inspect the record, a limited inspection whereof was allowed by the police to the..........of affairs was filed and the present complaint dated 20th march, 1970, was instituted by the official liquidator. the complaint has remained pending for a number of years. (2) in support of the prosecution case, .the official liquidator examined only one witness, shri ram nath, an assistant in his own office and the defense has examined only one witness, one shri r. c. garg an employee of shri jagjit singh sawhney. (3) shri ram nath stated that the company was ordered to be wound lip on 7th october, 1969, and the company had only two directors. namely. shri jagjit singh sawhney and shri gurcharan singh sawhncy (accused in this case). some of the records of the company were with the crime branch, c.i.d.. and some were with the offcial liquidator. a letter was written to the crime.....
Judgment:

D.K. Kapur, J.

(1) This prosecution under Section 454(5-A) of the Companies Act, 1956, requires reference first to some of the admitted facts of the case. R. S. Motors (P) Ltd., is a company which was ordered to be wound up on 7th October, 1969, by this Court. On the date of the winding up order, some of the records of company were with C I.D. Crime Branch and the remaining records were with the Liquidator. Section 454 of the Companies Act, 1956 requires the Directors of the company to submit a statement of affairs within 21 days of the winding up order subject to an extension being granted for an additional period which might extend to three months. The Offcial Liquidator sent notices to the two accused-directors, Shri Jagjit Singh Sawhncy and Shri Gurcharan Singh Sawhney. on 15th December, 1969, calling upon them to submit a statement of affairs.. The directors replied to say that all the books of the company had been removed in October, 1967. by the C.I.D. Crime Branch and the books of other associated companies, viz. M/s. B. Dharam Singh & Co., (P) Ltd., and M/s. B. Dharam Singh Ram Singh were also removed. The directors prayed for extension of time being granted. The extension was accordingly granted up to 7th January, 1970. which was the maximum period permitted by law. No statement of affairs was filed and the present complaint dated 20th March, 1970, was instituted by the Official Liquidator. The complaint has remained pending for a number of years.

(2) In support of the prosecution case, .the Official Liquidator examined only one witness, Shri Ram Nath, an Assistant in his own office and the defense has examined only one witness, one Shri R. C. Garg an employee of Shri Jagjit Singh Sawhney.

(3) Shri Ram Nath stated that the company was ordered to be wound lip on 7th October, 1969, and the company had only two directors. namely. Shri Jagjit Singh Sawhney and Shri Gurcharan Singh Sawhncy (accused in this case). Some of the records of the company were with the Crime Branch, C.I.D.. and some were with the Offcial Liquidator. A letter was written to the Crime Branch to permit inspection being granted to the directors. The directors did not visit the office of the Liquidator but had asked for extension which was granted up to 7th January. 1970. On cross-examination, he admitted that a letter dated 24th December, 1969, had been received from Shri Jagjit Singh Sawhncy. the first accused. That document is Exhibit R-1 After receipt of that letter, the Official Liquidator wrote on 21st March, 1970 to the Crime Branch. The witness was unable to say if the first accused, Shri Jagjit Singh Sawhney had been meeting Shri Bhargava, the then Official Liquidator. The witness admitted that he was dealing as an Assistant in the office with the liquidation work of as many as 15 companies. The wilness also admitted that the books of the company were handed over to the Official Liquidator by Shri Jagjit Singh Sawhney, but he could not recall a list of the books that had been filed.As far as the records seized by the police were concerned, he admitted that the same were received on 14th July. 1971. He produced a list of the books returned by the police, that list being Exhibit Public Witness 1/1 He was unable to say whether these books constituted a complete set of books of the company for the years 1961 to 1967, as the books had not been checked. He denied that the directors had come to the office of the Liquidator to inspect the records to prepare the statement of affairs. He, however. admitted that two representatives of the accused were already working in the office of the Official Liquidator in order to preparc the statement of affairs of another firm, namely, M/s. Dharam Singh Ram Singh. On 16th July, 1971, the Official Liquidator made a statement that the books necessary to prepare the statement of affairs were now available in the office and the statement of affairs should now be prepared. Counsel for the accused submitted that he was willing to get the statement of affairs prepared but a reasonable time was required. The Court, Shankar J., ordered on that day that the Official Liquidator was to give inspection to the accused persons of the records to enable them to prepare the statement of affairs, but this was without prejudice to their liability to submit a statement of affairs earlier.

(4) The accused were not examined under Section 342 of the Criminal Procedure Code, but a statement of Shri R, C. Garg, the only defense witness was recorded on 27th August, 1971. It was stated by this witness that he was working as an Accountant of the firm, M/s. Dhuram Singh Ram Singh since 1964 and he went to the office of the C.I.D., Crime Branch. Delhi, to inspect the books of this firm also. He had taken notes but there was not enough time to complete the work. The books were returned to the Official Liquidator on 17th July, 1971, and thereafter he went to the Official Liquidator regularly. He explained that the complete inspection was not even now completed because reconciliation of the Bank accounts with the entries in the account books was not complete. Another company, M/s. B. Dharam Singh & Co. (P) Ltd.. had gone into liquidation under the orders of the Allahabad High Court and there were three partnership firms. M/s. B. Dharam Singh Ram Singh, D. S. Ram Singh and Co. (P) Ltd.. and D. R. Motors. The entries in the accounts had also to be reconciliated with the accounts of those firms. He said that at least five to six months were necessary to complete this work. In cross-examination, he stated that he had gone to the office of the C.I.D.. Crime Branch two or three times and each time he had spent 4/6 hours with the permission of the authorities. He had been regularly visiting the office of the Official Liquidator in connection with the accounts of M/s. Dharam Singh Ram Singh (P) Ltd., and inspected the accounts of R. S. Motors for tenor 15 days. This is the entire oral evidence.

(5) The pleas of the accused persons were recorded before the commencement of the complainant's evidence. Shri Jagjit Singh Sawhncy stated that the books of the company were with the C.I.D., Crime Branch, Delhi, in connection with the criminal case pending against the directors of the company and, thereforee, the statement of affairs could not be filed. The other accused, Shri Gurcharan Singh Sawhncy stated that he had not been able to submit the statement of affairs for reasons outside his control. The books were with the Crime Branch, C.I.D., who permitted inspection only for a limited duration of time and necessary copies were not available for filing the statement of affairs.

(6) It is now necessary to turn to the documentary evidence. Exhibit P.W. 1/1 is the list of books seized by the police. It shows that a number of vouchers of the year 1961 were seized by the police as well as the Minutes Books for the period 14th December, 1959 to 3rd March, 1967. Then a number of other books for the period 1960 to 1967 were seized. They were nine Day Books, 7 Hirer Ledgers. 6 Miscellaneous Ledgers, 4 Bank Ledgers, the Bank and expenditure Ledgers for 1966-67; one General Ledger for 1961 and two Ledger expenditure for 1960-61 and 1961-62. It is obvious from a reference to these numerous books that the major part of the record of the company was in the hands of the police for a considerable period. Then it is necessary to refer to the letter sent by the directors on 24th December, 1969 to the Official Liquidator disclosing why the statement of affairs could not be filed. It was stated in this letter that it was impossible to get a proper inspection of the records in the C.I.D.. Crime Branch and there were numerous reasons why the statement of affairs could not be fled. Those reasons can conveniently be reproduced here:-

'(1)During October, 1967, the C.I.D. Crime Brand) had raided our office and ransacked the same by removing all vouchers, papers and account books of the Company from its inception i.e. from 1959 up to March 1967. These books are still in the possession of the C.I.D. Crime Branch since October, 1967. (2) While the C.I.D. Crime Branch raided this Company, they removed the books of other associate Companies also, i.e., B. Dharam Singh and Co. Private Ltd., and B. Dharam Singh Ram Singh. Those books are still in the possession of the C.I.D. Crime Branch since October 1967. Apart from the books of this Company, which are needed for making the statement of affairs, the books mentioned in this paragraph are also required for the reasons that these books have inter-connecting entries with the books of this Company (under liquidation). (3) After these books were removed by the C.I.D. Crime Branch, we had made a 'petition before the S.D.M.. Darya Ganj, requesting him to allow us to inspect these books of and on for taking out required information for the purpose of income-tax, sales-tax and for the various suits pending in Courts. The learned Magistrate had allowed us permission for the inspection of the record only for once a week and that too was granted with the clear directive that we have to give one day's advance notice to the C.I.D. Crime Branch indicating our desire to inspect the books. (4) The inspection allowed as mentioned in para No. 3 was not sufficient at all to compile various accounts. Notwithstanding the permission allowed by the learned Magistrate, we had seen numerous difficulties in inspecting our books even on the permitted dates because the officials of the C.I.D. Crime Branch were not available at most of the time and we had to wait for a considerable period to go and inspect the books. Apart from this, since the books of three Companies are involved, one day's inspection pection in a week's time is absolutely not sufficient'.

(7) The facts set out m this application would show that a very limited time was allowed by the C.I.D. Crime Branch and, thereforee,it is not surprising that the statement of affairs could not be filed within the time prescribed by law. As an annexure to Exhibit P. W. 1/1, which is a list of documents seized 'by the police, there is also a list of files which was taken by the Official Liquidator from the Crime Branch, Curzon Road, New Delhi. These files arc 38 in number and are Hirer files. In the absence of any other material, I would think that the absence of these files would be sufficient to show that the statement of affairs could not be filed by the accused persons. If any further proof of this is required, a letter sent by the Official Liquidator to the Superintendent of Police, Crime Branch, which is on record as P. W. 1/2, is self illustrative. That letter states :-

'I have to say that the above noted company has gone into liquidation vide High Court order dated 7-10-1969 and the undersigned has been appointed its Liquidator. The notices to the debtors arc to be issued but most of the record of the above Co. are with you. You are thereforee, requested to please hand over the records to this office so that necessary action against the debtors of the company be taken, before the debts become time barred. Also please let this office know the reasons for not handing over the records of the company (In liquidation) to this office.'

The surprising feature of this case is that although the Official Liquidator knew in 1969 that the records of the company were with the police, he did not take any action to get the books released from the police or to get the same into his custody as is required by the Companies Act. If these books had been got back. the statement of affairs would not have been delayed in the present case. It is not for me to comment on the procedure adopted as I have only to determine whether the accused had a reasonable excuse for not submitting the statement of affairs in time.

(8) The provisions of Section 454(5-A) of the Companies Act, 1956. run as follows :-

'THECourt by which the winding up order is made or the provisional liquidator is appointed, may take cognizance of an offence under sub-section (5) upon receiving a complaint of facts constituting such an offence and trying the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure. 1898, for the trial of summons cases by Magistrates'.

In order to determine what the requirements of the Section are. it is necessary to refer to what the directors must do: the default of which is made an offence by sub-section (5A). Under sub-si'ct'on (1) of Section 454, a statement of affairs of the company has to be made and submitted to the Official Liquidator. The statement is required to set out the assets of the company, i.e., cash balance: the debts and liabilities of the company: the names, residences and occupations of its creditors, and the amounts of secured and unsecured debts and other particulars; the debts due to the company with names, residences and occupations of the persons from whom they arc due and the amount likely to be realised on this account and other information that may be required. The Company Court Rules contain a prescribed form which has to be filled up. A reference to this form shows that numerous particulars have to be given which arc not easily ascertainable without reference to the books. Sub-section (2) of Section 454 of the Act requires the directors to submit this statement of affairs and there is power to get a direction of the Court that persons other than existing directors, manager or Chief Oflicer of the Company might be required to submit and verify the statement of affairs. Subsection (4) permits the person submitting the statement of affairs to claim extension from the Official Liquidator in this connection. If the records of the company are easily available, there is no difficulty in complying with the provisions of this Section and then it can be seen as to whether there has been a default in complying with the provisions. If the books are not available, as in the present case. then it can be urged on behalf of the directors that there is a reasonable excuse for not submitting the statement of affairs. That is the case before me.

(9) It is sumitted before on behalf of the Oflicial Liquidator that there is no reasonable excuse made out by the defense and the accused persons should be convicted under Section 454(5-A) of the Act for failure to file the statement of affairs in time. It is urged by learned counsel that the Section is mandatory and the directors should have gone to the police and prepared the statement of affairs and completed within 21 days. There is no evidence at all to show that this could have been done when only limited inspection was allowed by the C.LD., Crime Branch. This has been slated in the letter dated 24th December, 1969. It has also been stated by the accused at the inception of the trial when their picas were recorded. It is supported by letter Exhibit Public Witness 1/2. written by the Official Liquidator himself to the Superintendent of Police, Crime Branch on 5th June. 1971. It is clear from that letter that even till 5th June. 1971 the Officil Liquidator was unable to look at the books which were in possession of the Crime Branch. Thus, even the Official Liquidator was unable to proceed against the debtors and found that the claims had become time barred. It is not understandable how the accused persons could have got these books at an earlier dale. thus find that there is no material at all to come to the conclusion that the excuse of the accused is not reasonable.

(10) What is a reasonable excuse I would think that any excuse that would reasonably suggest that the accused could not compiv with pro. visions of law is a reasonable exciise If the books of the company were in a state of disorder and a number of records and files were with the police, it would be most difficult for the accused persons to prepare a statement of affairs. The law does not impose an impossible liability on the directors. What one has to see in such a case, is whether a reasonable person placed in the same situation as the directors, would be able to complete the statement of affairs without reference to the books with the police. I am unable to find any material to show that the statement of affairs could have been completed without reference to those books. Indeed, the Official Liquidator has made no attempt to show that the books available in his office were sufficient to complete the statement of affairs. He has also not examined any evidence from the C.I.D. Crime Branch to show that proper facilities were given to the accused to prepare the statement of affairs. Indeed, the only argument that the learned counsel of the Official Liquidator could address was that Shri R. C. Garg, D. W. I only went to the office of the C.I.D., Crime Branch 2/3 times as admitted in the cross-examination. There is nothing to show that he was the only person who visited that department. thereforee, come to the conclusion that the accused have made out their defense and they had a reasonable excuse for not submitting the statemnt of affairs within the time prescribed by Section 454(3) of the Companies Act, 1956.

(11) It has been urged by learned counsel for the Official Liquidator that there is a decision of the Orissa Htgh Court reported as Registrar of Companies v. Orissa China Clay Refinery Co. Private Ltd. : AIR1967Ori185 , in which it was held that the mere seizure of papers by the police did not avoid the directors' liability to submit a statement of affairs under Section 454 of the Companies Act, 1956. From the facts of that case, it appears that only a few documents had been seized by the vigilance police on 9th January, 1966. The winding up order was passed on 21st January, 1966, but the .accused wrote only on 19th April, 1966, to say that the documents had been seized. Thereafter, there was considerable delay in filing the statement. The judgment does not at all deal with whether the accused had a reasonable excuse for not filing the statement of affairs, but stated thus:-

'ASSUMINGthat the accused ex-Director-in-charge was handicapped in filing the statement of affairs by reason of the seizure of some necessary papers by the Vigilance Police prior to the winding up order, even so, it is not understandable why immediately after he received the notice of the Official Liquidator on March 23, 1966 the accused ex-Director-in-charge did not immediately write to the Official Liquidator that some of the necessary papers had been seized by the Vigilance Police. In fact, it was not until April 19, 1966 that the accused ex-Director-in-charge for the first time wrote a letter (Ex. 2) to the Official Liquidator intimating to him about the seizure of the papers by the Police and asked for forms as herein before stated.'

(12) The case was, thereforee, decided on its own peculiar facts, namely. that the accused did not inform the Official Liquidator of the seizure of some necessary papers for a considerable period. Eventually, the Court found extenuating circumstances and imposed a fine of only Rs. 100 on the Director concerned. I do not think that the present is at all a parallel case. There is nothing in the report of the case referred to, to show that the account books had been seized. The- Court, thereforee, proceeded on the basis that there was only a handicap in preparing the statement of affairs. I am dealing with a case- where the accused found it impossible to prepare the statement because of the seizure of the entire record of the company. In such a situation, it was impossible for the accused to prepare the statement. The reasonableness of the excuse of the accused for not furnishing the statement of affairs would vary from case to case, and would depend entirely on the kind of situation that the directors found themselves in, when called upon to submit the statement. In one case there may be difficulty and in another there may be impossibility. I must thereforee hold that the judgment of the Orissa High Court has to be confined to the peculiar circumstances of the case before it. No general principle of law can be deduced from it.

(13) In this connection. I cannot help refering to the observations of Vaughan Williams J., made in //; Re Colombian Gold Mines (Limited) (1893-94) Times Law Reporter 478 (2) where he stated:-

'THENthe order seems to me to be made without any enquiry. whether there really was a default on the part of the person required to make the statement, or whether he had full materials to enable him to make a statement; this seems to have been done as a matter of course. I think the practice is a bad one.'

These observations were made in respect of a similar provision in the Companies (Winding up) Act, 1890. The statement of law seems to me to equally apply to the situation in hand. If the accused persons did not have the material for making out and submitting a statement of affairs, I cannot see how they can be held guilty or default; there clearly was a reasonable excuse for not submitting the statement of affairs.

(14) Then reference has been made to Great Indian Steam Navigation Co. and others, v. The State and another : 71CWN157 That was a case which decided several Criminal Revision Petitions connected with the prosecution of the directors of the Great Indian Steam Navigation Co. Ltd. There had been a default in complying with the requireiments of Section 210(5) of the Companies Act, 1956 and a criminal prosecution had been launched. The entire' papers of the company had been seized in June or July, 1957 by the police, but ample opportunity had been given to examine and inspect the documents seized for preparing the balance-sheet and profit and loss account. The prosecutions were concerned with the Annual General Meetings of the Company held during the period 1957 to 1961. Oil account of ample opportunity having been granted to make inspections, and because such inspections were made. the convictions were upheld. No relief was granted under Section 633 of the Companies Act. 1956. If such opportunity for inspection had been proved by the complainant even in the present case, I would also have held that the accused persons had no reasonable excuse. As no such evidence has been led by the complainant, I cannot, on the facts, hold that the accused have failed to orove their defense in the present case.

(15) In the circumstances, the complaint fails and the accused persons. Shri Jagjit Singh Sawhney and Shri Gurcharan Singh Sawhney are acquitted.


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