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Official Liquidator Vs. K.K. Nair and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberC.P. No. 9 of 1969
Judge
Reported in[1975]45CompCas278(Ker)
ActsCompanies Act, 1956 - Sections 454(2) and 454(3)
AppellantOfficial Liquidator
RespondentK.K. Nair and anr.
Appellant Advocate T.V. Ramakrishnan, Adv.
Respondent AdvocateAccused No. 1 in person
Excerpt:
.....the accused of the charge, relying on the evidence of a person said to be a worker in the company's office, who deposed that the officers of the industries department of the kerala government raided the office of the company on the morning of july 3, 1962, and removed all the records and the goods of the company, and holding that the non-availability of the records of the company was a sufficient ground for not holding the annual general meeting and not filing the annual return. in cross-examination, he stated in this court that he has complained to several authorities about the illegal raid and seizure of the company's records andproperties, that he has not got so far any relief from any quarters, that there are no records to show that he has made any complaints, that himself..........deals with two classes of persons. the first part of it deals with persons who are at the relevant date directors, manager, secretary or other chief officer of the company. the second part deals with such of the persons mentioned in clauses (a) to (d) thereunder as the official liquidator, subject to the directions of the court, may require to submit and verify the statement. clause (a) relates to ' persons who are or have been officers of thecompany.' there can be no dispute that the accused in this case would fall both under the first part of sub-section (2) and also under clause (a) of its second part. the official liquidator filed application no. 94 of 1970 applying for an order directing the accused to produce all books and to submit and verify a statement of affairs of the company.....
Judgment:

M.U. Isaac, J.

1. This is a complaint filed by the Official Liquidator of the Bharat Electric Company Ltd. under Sub-section (5) of Section 454 of the Companies Act, 1956. The company was incorporated on August 29, 1953, as a private company and it was converted as a public company on November 23, 1959. The registered office of the company was originally at Alwaye and subsequently it was shifted to Trivandrum. The company was wound up by this court by its order dated February 19, 1970. The first accused was its general manager and one of the directors. The second accused is his wife ; and she was another director. The complainant called upon the accused by the notice dated March 16, 1970, to file the statement of affairs of the company as required by Sub-section (2) of Section 454 of the Act. They did not comply with the notice. Thereupon, the complainant moved this court for an order directing the accused to submit and verify the statement of affairs of the company as required by the above provision. On October 23, 1970, this court ordered notice to the accused allowing them one month's time to file the statement of affairs. The accused did not comply with that order also. Thereupon, this complaint has been filed on the allegation that the accused made default in complying with the requirements of Section 454(3) of the Act without reasonable excuse.

2. The accused appeared before this court in response to the summons issued to them ; and both of them pleaded not guilty. The first accused filed a statement on February 18, 1972, stating that the office of the company was raided and all its properties and books and records were removed by the State of Kerala on July 3, 1962, that the company became defunct from 1964 onwards, and that the accused are not, therefore, in a position to file any statement of affairs of the company. It is also stated that both the accused ceased to be directors of the company more than one year before the date of winding up of the company, and that the liability under Section 454(2) of the Act would not apply to them. The first accused has produced a few documents along with the above statement.

3. The case was posted for evidence ; and it has been adjourned on a number of occasions on the application of the accused. The personal appearance of the second accused had been dispensed with; and she had been allowed to appear through advocate. On June 5, 1972, when the case was taken up for evidence, the second accused and her advocate were absent. Therefore, warrant was ordered to her, and the complaint in so far as it relates to the first accused alone was ordered to be proceeded with. The complainant examined one witness, who proved exhibits P-1 and D-1. The accused desired to be examined on oath; and so he was examined as DW. 1 who proved exhibits D-2 to D-4. The parties had no further evidence. Arguments were heard on June 6, 1972.

4. The first accused argued his case in person. His main contention was that he and his wife ceased to be directors of the company more than one year before the date of winding up of the company; and that the liabilityunder Section 454(2) of the Companies Act is not attracted. Admittedly, the first accused was the general manager and one of the directors of the company and the second accused was a director. His case is that he was appointed general manager and director of the company only for a period of five years, which expired on November 28, 1964, and that he ceased to hold the above office thereafter. In support of the above contention, he relies on a statement contained in exhibit D-1, which is a reply affidavit filed by the Registrar of Companies in the winding up petition. That statement reads :

' By order No. 1 (163)-C1/61 dated August 28, 1961, the Government of India have under Section 311 of the Companies Act, 1956, approved the re-appointment of Sri K.K. Nair as the managing director of the company designated as general manager by the company for a period not exceeding five years, with effect from November 28, 1959, on the increased remuneration of Rs. 500 (Rupees five hundred only) per mensem. It is admitted by the petitioner that no general body meeting by the respondent company was held after the balance-sheet as at August 31, 1960, has been adopted. The said balance-sheet, it would appear, was adopted at the meeting held on August 19, 1961. Since admittedly no meeting was held after August 19, 1961, the agreement dated November 28, 1959, could not be revived and Sri K. K. Nair should be deemed to have vacated office in any case as General Manager on November 28, 1964 '.

5. There is force in the contention of the first accused. As this appointment as general manager was only for a period, he ceased to hold that office after the expiry of that period on November 29, 1964. Section 255 of the Act deals with appointment of directors, and it provides that unless the articles provide for retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors shall be persons whose period of office is liable to determination by retirement of directors by rotation, and that save as otherwise provided, be appointed by the company in general meeting. Therefore, no director, who is not one appointed for a fixed period, would be able to hold office for a period beyond the second annual general meeting from the date of his appointment, unless he is re-elected. There is no case that the accused in this case do not fall in this ordinary class of directors or they had a special period of appointment, which has not ended. Since no general meeting had been admittedly convened after August 19, 1961, the accused could not hold office as directors in any event beyond a period of 30 months from the said date, 15 months being the period under Section 165 of the Act to convene an annual general meeting after the holding of the previous one. The order of winding up of the company is dated February 19, 1970. I have, therefore, to hold that the accused ceased to be directors or officers of the company more than one year before the date of winding up of the company. It has to benoticed in this context that the first accused has not taken up such a position at any stage of the winding up proceedings except in this criminal complaint, and that, even in the statement of affairs filed by him under Section 454 of the Act, which is dated June 3, 1971, and marked as exhibit P-1, he has styled himself as director and general manager. He has also assumed the same style in the counter affidavit dated September 9, 1969, which he has filed in the winding up petition. This cannot affect the legal position.

6. It was contended on behalf of the complainant that the accused cannot escape from the liability under Section 454(2) of the Act by the mere fact that they were not holding any office in the company for more than one year before its winding up, in view of the fact that they would fall under Clause (a) of Sub-section (2) of Section 454. This position is disputed by the first accused ; and, according to him, the period of limitation would apply to all classes' of persons mentioned in Sub-section (2). It is necessary to read that sub-section to deal with the above contention.

' (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 person 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.'

7. The relevant date is defined in Sub-section (8) as the date of appointment of a provisional liquidator, if one is appointed, and the date of winding up order, where no such appointment is made. In this case, no provisional liquidator was appointed, and so the relevant date is the date of winding up order. A careful reading of Sub-section (2) shows that it deals with two classes of persons. The first part of it deals with persons who are at the relevant date directors, manager, secretary or other chief officer of the company. The second part deals with such of the persons mentioned in Clauses (a) to (d) thereunder as the official liquidator, subject to the directions of the court, may require to submit and verify the statement. Clause (a) relates to ' persons who are or have been officers of thecompany.' There can be no dispute that the accused in this case would fall both under the first part of Sub-section (2) and also under Clause (a) of its second part. The official liquidator filed Application No. 94 of 1970 applying for an order directing the accused to produce all books and to submit and verify a statement of affairs of the company under the above section. The application was ordered on October 23, 1970, after issuing notice to them and giving them ample opportunity for being heard. Therefore, the requirements of Clause (a) of the second part of the sub-section have been completely satisfied. The period of one year before the relevant date is provided only in the case of persons falling under Clauses (b), (c) and (d). No such limitation is provided in the case of persons falling under Clause (a). The contention that the liability under Sub-section (2) of Section 454 of the Act would not apply to the accused, since they ceased to be directors or officers of the company more than one year before its winding up, has, therefore, to be rejected.

8. It was next contended by the first accused that the default to submit and verify the statement under Section 452(2) was not without reasonable excuse ; and that he is not, therefore, liable for punishment under subsection (5) of Section 454. The sub-section reads:

' 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 hundred rupees for every day during which the default continues, or with both.'

9. As already stated, the case of the first accused is that the office of the company at Trivandrum was raided and all its books and records were carried away by the Kerala Government on July 3, 1962. As DW. I, he deposed to that case ; and in support of that, he has relied on a judgment in C.C. No. 257 of 1963 of the Additional First Class Magistrate, Erna-kulam, copy of which has been marked as exhibit D-4. That was a case in which he was prosecuted by the Registrar of Companies along with his wife under Section 162 of the Companies Act for having failed to submit the annual return for the year ending August 31, 1961. The Magistrate acquitted the accused of the charge, relying on the evidence of a person said to be a worker in the company's office, who deposed that the officers of the Industries Department of the Kerala Government raided the office of the company on the morning of July 3, 1962, and removed all the records and the goods of the company, and holding that the non-availability of the records of the company was a sufficient ground for not holding the annual general meeting and not filing the annual return. In cross-examination, he stated in this court that he has complained to several authorities about the illegal raid and seizure of the company's records andproperties, that he has not got so far any relief from any quarters, that there are no records to show that he has made any complaints, that himself and the company's staff were present in the premises when the Government officers made the raid and carried away the records, and that he does not know even now why they did so.

10. This is too good a story to be believed, though it found acceptance with the Magistrate. The statements of findings contained in the judgment are not admissible evidence in this case. I reject the story as absolutely fantastic. Exhibit D-1, the reply affidavit filed by the Registrar of Companies in the winding up petition, shows that the Industries Department of the Government, from whom the company had taken its office building on rent, took out proceedings under the Revenue Recovery Act to evict the company from its building and to recover the arrears of rent due from the company. The reply affidavit also shows that a large amount was due as arrears of rent, the first accused and the company's staff had absconded after locking up the buildings, that the revenue authorities were, therefore, obliged to break open the building, and attach the movables found therein. This, appears to be what has really happened.

11. Though the case put up by the petitioner in justification of his inability to submit the statement of affairs of the company is false, it still remains for consideration whether, on the facts and circumstances of the case, there is any reasonable excuse for not filing a statement of affairs as required by Section 454(1) of the Act. It is seen from the evidence before me that the last general meeting of the company was held on August 19, 1961, that the company had run into ruins even before that, and that the last nail on its coffin was struck, when the revenue authorities broke open its office building and attached the movables available in the company's office for the recovery of the arrears of rent due to the Industries Department. Thereafter, the company really ceased to exist, except on the records ; and there was no question of maintaining any accounts or any other records. I am inclined to believe the first accused, when he says that he is not in possession of any of the old books of account or records of the company, except those which he has handed over to the official liquidator. That being so, the accused would be unable to submit a statement of affairs of the company containing the particulars mentioned in Section 454(1) of the Act, after a period of about 10 years since the company ceased to carry on any business and even to exist for all practical purposes. I hold that the default of the accused in submitting the statement is not without reasonable excuse. He is not, therefore, guilty of the offence complained of and is acquitted.


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