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TMI Blog2007 (12) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... fficers of the company immediately prior to the winding up order being made (and even other officers) to file statements before the official liquidator and ensure that all of the wound-up company's assets are placed in his hands. There needs to be a degree of seriousness in course of the liquidation proceedings that is fundamental to the concept of a company. By and large companies set up in this country are limited liability companies. The word "limited" that the Act requires a company to append at the end of its name is a warning at large to persons dealing with the company that the liabilities of persons who make up the mind and limbs of the company are limited to the extent of their contribution in the capital of the company, if they have contributed to it at all. The stringency necessary at the end of the company's run, in the liquidation proceedings, is to ensure that business ventures floated with limited liability by the human agencies are not deliberately run aground and its assets fraudulently dissipated before the company is sent into liquidation. This special feature of a company, of the limited liability of the human agencies behind it, is being increasingly abused for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile officers of a company in liquidation to be brought to book. In the present case, two of the respondents have appeared and the first respondent has more than indicated that he was the principal person in control of the company's affairs prior to its liquidation. The second respondent has also appeared but he was a director of the company for less than a year between March 22, 1994 and March 13, 1995, having resigned some four years before the company went into liquidation. The third and fourth respondents have not been served as, despite substituted service, the third and fourth respondents cannot be said to have had notice of these proceedings as they appear to be residents of Austria. The points of claim filed by the official liquidator do not make out specific charges against the erstwhile directors by name nor are the charges of general nature directed against some of the directors in some cases and in other directors in other case. The points of claim do not indicate which of the directors were executive or whole time directors and which of the directors were non-executive directors or which of them had been nominated by creditors. The points of claim merely repeat or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently recovered nor was the property acquired. 8.The company had made an advance in August, 1994 of Rs. 15 lakhs to Sri Satya Sai Properties and Investment P. Ltd., and accounts were sub sequently adjusted by journal entries being passed without any money returning to the company. 9.In August, 1994 the company gave an advance of Rs. 10 lakhs to M/s. Bhuwalka Trading and Tea Co. P. Ltd., and similar adjustments were made in the books without the money being returned to the company. 10.An advance of Rs. 37 lakhs was shown to have been given by the company to one M/s. Padmawati Mercantile P. Ltd., in August, 1994 but it appears from the records maintained by the Registrar of Companies that there was no company by such name and it was a fictitious entry made for diverting company funds. In addition, there is a general charge that the accounts of the company were window-dressed and prepared to conceal the financial affairs of the company and that queries raised by the auditor investigating into the company's affairs on the statutory auditors of the company went unanswered. The official liquidator has examined the auditor. The first respondent chose not to take to the box but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nus that the official liquidator needs to discharge cannot be fulfilled if he has incomplete records. The first respondent has used two sets of pleadings; the first, is an affidavit of December 13, 2004, as his points of defence, and a second, an affidavit of Sripati Dutta affirmed on his behalf on March 1, 2007, after taking inspection of the records of the company in liquidation available with the official liquidator. The first respondent has suggested in his first affidavit that he made "an earnest endeavour to get in touch with the company secretary and the accountant of the company (in liquidation) ... In an attempt to answer the points of claim" against him. The first respondent complained in his first affidavit that he was unable to take inspection of the company's books from the official liquidator "which are reasonably expected to contain information in support of my defence." He has cited his not having access to the company's office since June, 1989 on account of workmen resisting his entry, agitated by non-payment of wages. The first respondent has altogether washed his hands off the matter by submitting that the official liquidator had taken possession of the books, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company in liquidation to Sri Satya Sai Properties and Investment P. Ltd., (Rs. 15 lakhs) and to Bhuwalka Trading and Tea Co. P. Ltd., (Rs. 10 lakhs), on behalf of ILPL. According to the first respondent, since such property could not ultimately be purchased, the sum of Rs. 25 lakhs was subsequently debited to ILPL for it to be adjusted against future rents payable by the company in liquidation to ILPL. The defence is that the sum of Rs. 25 lakhs covered by the eighth and ninth heads of claim noticed above, are a duplication of the claim made under the second head for Rs. 59,70,423 made available by the company to ILPL. As far as the payment of Rs. 37 lakhs to Padmawati Mercantile P. Ltd., was concerned, the first respondent has suggested in his second affidavit that such payment was also made on behalf of ILPL and "was later adjusted against rent payable by the company" to ILPL. That no company by the name of Padmawati Mercantile P. Ltd., existed is a point that is completely overlooked by the first respondent. The substance of the defence is that as ILPL permitted the company in liquidation to occupy the leasehold premise and to construct an office complex thereat ILPL was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been cited by the first respondent to suggest that mere failure, without motive, to realise the dues of the company would not amount to misfeasance. The principle cannot be questioned, but in its application there rests the question of fact as to whether there was motive on the part of the charged directors to not realise the dues on behalf of the company. The first respondent has referred to the judgments reported in Central Calcutta Bank Ltd., In re [1959] 29 Comp. Cas. 437 (Cal.), Security and Finance ( P.) Ltd. v. B.K. Bedi [1991] 71 Comp. Cas. 101 (Delhi), Official Liquidator, Milan Chit Fund and Finance (P.) Ltd. v. Joginder Singh Kohli [1978] 48 Comp. Cas. 357 (Delhi) and Premier Credit and Motors Co. ( P.) Ltd. v. Shafiqur Rehman [1987] 3 Comp. LJ 197 (All.) in support of his contention that the general principle of liability of joint tortfeasors would not be applicable in misfeasance proceedings. It is not necessary to go into such question as such defence would not be available to the first respondent on the overwhelming representation made on his behalf that he was in charge of the company and its affairs. The judgment reported in Official Liquidator, Aryodaya Ginning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is opinion that had the adjustment been in quantity, it would have been a case of inventories being written off, but since no other documents were available for him to go by, it appeared to him that it was a case of revaluation of the inventories. It was the expert's considered view that revaluation of stock is normally not made in the stock register as such register records inward and outward movement of inventory as a whole. In response to a question in course of his examination-in-chief, the expert witness opined that the mere allegation that inventories had been written off without a depletion of the inventories in the stock register, would not be conclusive proof of misappropriation of the amount corresponding to the value written off. It is a possible view. The investigating auditor's evidence on this aspect borders on innuendo. It is submitted on behalf of the official liquidator that if, indeed, there was a revaluation of the inventories and the more realistic value thereof was indicated upon revaluation, the recording thereof ought to have been more specific and not in the manner it was done. There is some basis in what the official liquidator says, but it is equally poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspecified immovable properties having been acquired in Calcutta and New Delhi. The official liquidator has relied on a letter written by Nitish Sengupta, a former director of the company, as being the basis of the sixth charge and as justifying the fourth charge relating to the Greater Kailash residential flat. The official liquidator, however, has failed to demonstrate the movement of money from the company funds on such account. There is a lurking suspicion that funds may have otherwise been removed from the company for financing the acquisition of immovable properties, albeit not in the name of the company. But a suspicion is not enough for a charge in proceedings of such nature to be established. It is possible that the official liquidator does not have all the books necessary for such charge to be established. It is equally possible that the excuse proffered by the first respondent that he had no access to the company records by reason of the agitating workmen not permitting him to enter the company's offices, is specious. But in the absence of additional material being produced by the official liquidator, the fourth and sixth charges remain vague and inconclusive. The fifth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any attempt at rebuttal of the facts justifying the inference, the charge has been sufficiently established. The seventh, eighth and ninth charges relate to payments made by the company to various entities. As far as the payment of Rs. 40 lakhs to Loyalka Properties P. Ltd., is concerned, the second affidavit filed on behalf of the first respondent shows that the company had received repayment of Rs. 35 lakhs and that the bank statements were not available from which it would be revealed that even the remaining Rs. 5 lakhs had been refunded. Though it was the responsibility of the first respondent and the other directors of the company to make over all papers to the official liquidator, much of the sting has been taken out of the seventh charge on it being apparent that a sum of Rs. 35 lakhs was received back by the company. It is possible, as the first respondent suggests, that even the remaining Rs. 5 lakhs was refunded. The payment of Rs. 15 lakhs to Sri Satya Sai Properties and Investments P. Ltd., and Rs. 10 lakhs to Bhuwalka Trading and Tea Co. P. Ltd., on the official liquidator's showing, were adjusted by journal entries without the moneys being actually ..... X X X X Extracts X X X X X X X X Extracts X X X X
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