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TMI Blog2009 (2) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... of appointment of the provisional liquidator, have failed to submit the same in spite of the letter of the official liquidator dated April 19, 1997. Since the statement of affairs has not been submitted, it is difficult to proceed with the affairs of the company and hence, the official liquidator has filed an application in C.A. No. 2395 of 1997 in C.P. No. 101 of 1994 with a report under section 454 of the Companies Act, 1956 and this court by order dated August 18, 2000, directed the official liquidator to file the prosecution against those who have been served but have not filed any statement. Since the respondents have not filed the statement of affairs, they are liable to be convicted for the offence under section 454(5A) of the Act with imprisonment which may extend to two years or a fine of Rs. 1,000 for every day during the default period. The official liquidator in the report has stated that the offence was committed on and from March 18, 1997, which continues till date. In those circumstances, the above application has been filed before this court to take cognizance of the offence committed by the respondents in not filing the statement of affairs. 3. By order dated Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the first respondent as well as his relatives with his personal guarantees. In such circumstances, the proposal of the fifth respondent was given effect. The first respondent has stepped down from the business. 6. It is also stated that the fifth respondent was made as a director on February 20, 1996, who has taken over the control of the company affairs. It is stated by the first respondent that the fifth respondent, at the time of taking over, was aware of the winding up petition filed by M/s. Walker Cremie in C.P. No. 101 of 1994. It is the case of the first respondent that until the year of transfer of management, he filed the balance-sheet and annual reports both to the Income-tax Department and before the Registrar of Companies and all the statutory books and records were handed over to the fifth respondent and the same was acknowledged by the fifth respondent on April 27, 1996. It is also stated that thereafter, an elaborate take over agreement was entered into between the first respondent and the fifth respondent, by which the fifth respondent and his group have taken over the company and the first respondent has stepped down from the management. It is further state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y M/s. Indag Products Ltd., for revival of the company was only subject to the decision of major creditors and since the same was not possible, he was not associated with the company in its day-to-day affairs. 8. The proposal for revival was not considered by this court and ultimately winding up order was passed. It is also stated that in October, 1997, the fifth respondent has written to the official liquidator that he intended to accept the proposal of compromise for the purpose of reviving the company but in the absence of any positive signal from the creditors, he lost his interest. It is stated that the assets, books of account and records of the company are in the possession of the first respondent and the fifth respondent has never acted as a director of the company after March, 1996 till date. Therefore, according to him, respondents Nos. 4 and 5 are not liable for prosecution under section 454(5A) of the Companies Act. 9. Mr. P.S. Raman, learned senior counsel appearing for the first respondent would submit that as per exhibit R3, which is the minutes of the meeting held in the chambers of the Official liquidator on May 21, 1998, the fifth respondent has specifically adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excused for the reason that he has been honestly and reasonably not in a position to file the statement of affairs. Since the filing of such statement of affairs has become impossible for the fifth respondent on the factual situation, he would rely upon the judgment reported in Haryana Drugs and Pharmaceuticals Ltd. (in liquidation) v. K. Singhal [2001] 104 Comp. Cas. 338 (P. & H.) and Devinder Kishore Mehra v. Official Liquidator [1980] 50 Comp. Cas. 699 (Delhi). 11. A reference to the contentions and affidavits filed by respondents Nos. 1 and 5 makes it clear that both the respondents have taken a stand that they were not in a position to file the statement of affairs as required under section 454 of the Companies Act, even though they are making complaints against each other. Under section 454 of the Companies Act, which is as follows : "454. Statement of affairs to be made to official liquidator.-(1) Where the court has made a winding up order or appointed the official liquidator as provisional liquidator, unless the court in its discretion otherwise orders, there shall be made out and submitted to the official, liquidator a statement as to the affairs of the company in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statement and affidavit as the official liquidator may consider reasonable, subject to an appeal to the court. (5) 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 thousand rupees for every day during which the default continues, or with both. (5A) The court 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, 18981, for the trial of summons cases by magistrates. (6) Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement submitted in pursuance of this section, and to a copy thereof or extract therefrom. (7) Any person untruthfully so stating himself to be a creditor or contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how reasonable cause for not complying with the requirement. As submitted by Mr. P.S. Raman, learned senior counsel, while prosecuting a person under section 454 of the Companies Act, it is certainly open to the accused concerned to show acceptable reason or reasonable cause for not filing the statement of affairs. The official liquidator, being the complainant complaining of the non-filing of statement of affairs, has to necessarily prove that the person against whom such complaint is made was in a position to file such statement of affairs and in spite of the same, he has failed to do so and therefore, liable for criminal prosecution. In fact, a learned single judge of the Andhra Pradesh High Court in Sunrise Oleo Chemicals Ltd. ( in liquidation) v. M.U.S. Rao [2004] 122 Comp. Cas. 519 , while extracting the earlier judgment reported in Official Liquidator, High Court, Andhra Pradesh v. Koganti Krishna Kumar [1997] 89 Comp. Cas. 672 (AP), has held that the onus is on the official liquidator to prove that the accused was in a position to file the statement of affairs. The Relevant portion of the judgment is as follows (page 524) : "Learned counsel appearing for both the accused s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shows that while the directors are under a duty to file the statement of affairs before the official liquidator where the company is directed to be wound up, still, if any person, without reasonable excuse, makes a default, he can be punished 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. Sub-section (5A) to section 454 of the Act prescribes the procedure for summons case. The important ingredient of sub-section (5) to section 454 of the Act is if there is a reasonable excuse, in that event the persons concerned cannot be held guilty. In this regard, reference can well be made to the decision of the Delhi High Court in the case of Official Liquidator, R.S. Motors P. Ltd. v. Jagjit Singh Sawhney [1974] 44 Comp. Cas. 381 . A complaint was filed under section 454(4) and (5A) of the Act. The defence was, and the evidence indicated, that a number of account books and some of the records of the company had been seized by the police. The other records were with the official liquidator. It was held that, therefore, the statement of affairs could not be filed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made an essential ingredient of the offence punishable under sub-section (5) of section 454 of the Act and the prosecution in the instant case, in my view, has discharged the initial burden to establish the said ingredient beyond any reasonable doubt. As already noticed, Mukta Devi, accused, was admittedly a director and obviously in charge of the affairs of the company. She has not led any evidence on the record which may slightly suggest that there was a reasonable excuse for her in not filing the statement of affairs. The other defence taken by Mukta Devi, accused, that primarily she was a housewife and thus was not actively engaged in the day-to-day affairs of the company, does not appeal to any reason that she was not liable to file the statement of affairs within the statutory period. Thus, the offence with which she has been charged stands fully proved against her and accordingly she is held guilty of the offence punishable under sub-section (5) of section 454 of the Act and convicted thereunder. However, having regard to the peculiar facts and circumstances of this case, I order Mukta Devi, accused, to pay a fine of Rs. 40,000. The fine shall be payable within six w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we see no reason why a mere academic order should be passed." 18. To find out as to whether the first respondent and the fifth respondent were the main persons against whom the liability could be fixed if at all, it is necessary to advert to some of the admitted facts before going into the evidence. The entering into of the taking over agreement on March 25, 1996, from the first respondent by the fifth respondent which was marked as exhibit RIO is not in dispute. The execution of the indemnity bond by the fifth respondent on the said date is also not in dispute. Under the said agreement, the fifth respondent is termed as taking over party (TOP) from the first respondent who is termed as stepping down party (SDP). The first respondent has to draw balance-sheet as on March 23, 1996. Incidentally, it is not in dispute that up to March, 1996 the first respondent has submitted the accounts of the company and prepared the balance-sheet as it is seen from exhibit R8. Under the said agreement, the first respondent has to submit a status report on income-tax, excise, customs, Central and State sales tax assessments as on March 23, 1996, apart from register of the members of Indag Produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the fifth respondent in his statement before the official liquidator as it is seen in the minutes of the meeting held on May 21, 1998, has stated about the books and records as follows : "Q8. Where are the books and records ? A. The ex-managing director Mr. James Frederick did not hand over either keys or the books etc., to me." 23. For a question about agreement executed at the time of change of management, the fifth respondent has stated as follows : "Q17. What are the agreement executed at the time of change of management ? A. 1.March, 1996 agreement for taking over. 2.One agreement on March 25, 1996. 3.Indemnity bond on March 25, 1996. 4.One letter of undertaking on November 1, 1996. 5.Another letter of undertaking on November 1, 1996. 6.Another letter of undertaking on November 1, 1996." 24. For another question regarding transaction with bank, the fifth respondent has stated as follows : "Q22. Do you have any transactions with the banks ? A. Correspondence was made to meet the liabilities according to the agreement dated March 25, 1996. I was not able to complete the requirement of Hong Kong Bank, that is why on April 30, 1997, I ceased as managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnation to Mr. C. Raghunatha Reddy, advocates, Madras, who shall act in respect thereof in terms of what has been stated in paragraphs 5 and 6 of the above said indemnity bond." 28. The said agreement dated March 25, 1996 and indemnity bond including the letters of undertaking were cancelled by the fifth respondent and his wife on October 25, 1997. As per section 454 of the Act, the statement of affairs ought to have been filed by March 18, 1997, as stated by RW1 in his evidence, in chief-examination. The first respondent has filed the statement of affairs before the official liquidator on December 22, 2006, which was returned for certain defects and ultimately, the defects were rectified on February 22, 2007. Therefore, between March 18, 1997 and December 15, 2006 or February 22, 2007, there is a delay in filing the statement of affairs and the same has been admitted by the first respondent as RW1 in his evidence also. One admitted fact is that up to March 25, 1996, the first respondent has submitted all his returns in respect of company affairs and the case of the first respondent is that after the fifth respondent has taken over the management, he had no resource with him and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the indemnifiers and their nominees shall also resign from the board of Indag Products Ltd., and hand over the management control of Indag Products Ltd., to the indemnity holder-1 and B. Raghavan and T.V.V. Nair, by inducting, the latter as directors. The said date, viz., April 30, 1997, shall be the essence of this document, and no extension whatever shall be permissible. Further, in the event of the indemnifiers failing to fully honour the agreement with Hong Kong Bank, after entering into the agreement with the said bank, the indemnifiers hereby undertake to indemnify the indemnity holders against all claims, damages, losses, expenses, costs, charges, interests that may be incurred by the indemnity holders in this regard, and shall also pay liquidated damages of rupees one crore to the indemnity holders. 6. In the event of the indemnifiers failing to enter into an agreement with Hong Kong Bank on or before April 30, 1997, as stated in paragraph 5 above, this indemnity bond shall immediately cease to have all force and effect, and the status quo ante shall automatically stand restored." It is not the case of the fifth respondent that he has acted as per clause 5 of the indem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the fifth respondent is concerned, it is certainly a peculiar factual situation. In view of the same, the offence charged against the first respondent has not been fully proved. On the other hand, the offence charged against the fifth respondent is proved on the own version of the fifth respondent, and therefore, the fifth respondent is convicted under section 454(5) of the Act. The evidence shows that the official liquidator desires to prosecute the offenders with a fine of more than Rs. 2 lakhs since the offence of non-filing of the statement of affairs is a continuing offence. However, taking into consideration on the peculiar facts and circumstances of the case as I have narrated above, I order the fifth respondent to pay a fine of Rs. 25,000. The fine shall be payable within six weeks from the date of the order and in the event of default in payment of fine, the fifth respondent shall undergo simple imprisonment for a period of two months. As regards the first respondent Mr. Samuel James Fredrick, the second respondent Mr. N. Chandrasekaran, the third respondent Mr. M.J. Premnath, the fourth respondent Ms. P. Bhuvaneswari and the sixth respondent Mr. B. Raghavan, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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