2008 (4) TMI 501 - HC - Companies Law

Winding up cognizance of the default committed by ex-directors under section 454(5) of the Companies Act, 1956 and to issue process against them - Held that - The company has borrowed the amount from one Mr. Mohandas M. Adnani, who has stated in writing that the settlement was arrived at and he had not to recover any amount either from the company or any of its directors or officers. It is not in dispute that the amount has been transferred by the company (in liquidation) to the partnership firm and there is no corresponding entry to that effect that the partnership firm has repaid the said amount to the company. Thus, the company still remains as a creditor of the partnership firm in the eye of law and since the company is in liquidation, the official liquidator is entitled to recover the said amount from the partnership firm by resorting to the pro visions of section 477 of the Companies Act, 1956. The court is not convinced with the submissions of learned counsel appearing for respondents Nos. 1 and 3 that they have resigned as directors much before the date of winding up order and hence they are not liable for default, if any, committed by the company in liquidation. However, looking to the documents produced before this court and considering the submissions made and facts found, the court holds that the statement of affairs is not filed in time nor it is found to be true and correct and hence the court holds all the three accused guilty for an offence under section 454(5) of the Act for their failure to file true and correct statement of affairs. But for the pendency of other criminal cases pending before the trial court in relation to the transaction of ₹ 50,00,000, the court would have considered the question of imprisonment for commission of default in complying with the requirement of section 454 of the Companies Act, 1956. The court, therefore, confines its order to the extent of imposition of fine of ₹ 10,000 on each of the accused which shall be paid by them to the official liquidator within 30 days from today. Failure to deposit this amount would render them liable to undergo the sentence of one month imprisonment with immediate effect.

Issues Involved:
1. Filing of criminal complaint under section 454(4) of the Companies Act, 1956.
2. Default under section 454(5) of the Companies Act, 1956.
3. Submission of statements of affairs and recording statements under rule 130 of the Companies (Court) Rules, 1959.
4. Investigation of the transaction of Rs. 50,00,000.
5. Liability and involvement of the accused ex-directors.
6. Compliance with statutory requirements and correctness of the statement of affairs.
7. Imposition of penalties and fines.

Issue-wise Detailed Analysis:

1. Filing of Criminal Complaint under Section 454(4) of the Companies Act, 1956:
The official liquidator filed a criminal complaint against accused Nos. 1 to 3, who were ex-directors of M/s. Ilaxi Modi Exports P. Ltd. (in liquidation), requesting the court to take cognizance of their default under section 454(5) of the Companies Act, 1956, and to issue process against them. The official liquidator also sought directions for the accused to submit statements of affairs in the statutory form and to attend his office for recording their statements under rule 130 of the Companies (Court) Rules, 1959.

2. Default under Section 454(5) of the Companies Act, 1956:
The court issued process on May 9, 2005, and further issued bailable warrants on February 7, 2006, for the production of accused Nos. 1 and 2. Despite notices, the accused did not remain present before the court, leading to further orders on August 8, 2006, and September 27, 2006, directing the accused to file the statement of affairs and remain personally present. The statement of affairs was eventually filed but was found to be incomplete and defective.

3. Submission of Statements of Affairs and Recording Statements under Rule 130 of the Companies (Court) Rules, 1959:
The official liquidator communicated defects in the statement of affairs to the accused, who were directed to submit complete statements and surrender the company's books of account. The accused were also asked to justify the estimated realisable value of the debt of Rs. 50,00,000 as nil. The accused were required to provide details and evidence about the transaction of Rs. 50,00,000 received from Mr. Mohandas Adnani. The court directed the accused to remain personally present for recording their statements, which were recorded on March 25, 2008, but no satisfactory answers were received.

4. Investigation of the Transaction of Rs. 50,00,000:
The court observed that the transaction of Rs. 50,00,000 was a subject of detailed inquiry and investigation under section 237 of the Companies Act, 1956. The investigation revealed that the amount received from Mr. Mohandas Adnani was transferred to a partnership firm, Modi Exports, on the same day. The investigation report detailed the flow of funds and concluded that the amount was siphoned off and misappropriated by the directors of the company.

5. Liability and Involvement of the Accused Ex-Directors:
The accused ex-directors shifted their responsibilities onto each other. Accused No. 1 claimed to have resigned as director on September 8, 1998, and was not involved in the day-to-day business. Accused No. 2 claimed to be a namesake director and unaware of the loan transaction. Accused No. 3 claimed to have resigned on September 9, 1998, and was not involved in the company's affairs. The court found that all three accused were directly involved in the transaction of Rs. 50,00,000 and attempted to transfer the amount systematically.

6. Compliance with Statutory Requirements and Correctness of the Statement of Affairs:
The court held that the statutory requirements were complied with by the accused as the statement of affairs was filed, though late. However, the statement was not found to be true and correct. The company borrowed Rs. 50,00,000 from Mr. Mohandas Adnani, which was transferred to the partnership firm without any corresponding entry of repayment. The court concluded that the company remained a creditor of the partnership firm, and the official liquidator was entitled to recover the amount.

7. Imposition of Penalties and Fines:
The court found all three accused guilty under section 454(5) of the Companies Act, 1956, for failing to file a true and correct statement of affairs. Considering the pending criminal cases related to the transaction of Rs. 50,00,000, the court imposed a fine of Rs. 10,000 on each accused, to be paid to the official liquidator within 30 days. Failure to deposit the amount would result in one month of imprisonment.

Conclusion:
The criminal case was disposed of with the imposition of fines on the accused for their failure to file a true and correct statement of affairs, while leaving the detailed investigation of the Rs. 50,00,000 transaction to the trial court.

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