Allowed

Official Liquidator M/Sa Ashok v. Ashok Kumar Dalmia and Ors.

Rajasthan HC21 Oct 2016COAP/21/1997

Case brief

AI extract

What is this about?

The High Court of Rajasthan convicted two directors of failing to file a company's statement of affairs during liquidation. Rejecting defence claims of fear and lack of access, the court imposed fines and prosecution costs, imposing a custody warrant as a default penalty.

What did the court decide?

Fine of Rs. 2,00,000 on each respondent and Rs. 1 Lakh prosecution costs deposited jointly/severally into the Common Pool Fund within 30 days; default leads to two months' simple imprisonment.

Official Liquidator M/Sa Ashok Vs Ashok Kumar… — Insolvency and Bankruptcy | Rajasthan HC (2016)

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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH JAIPUR

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O R D E R

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IN S.B. COMPANY APPLICATION NO.21/1997 IN

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S.B. COMPANY PETITION NO.04/1991

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Official Liquidator of M/s. Ashoka Oil Products Pvt. Ltd. (in Liquidation) attached to the Rajasthan High Court, B-75/A, Rajendra Marg, Bapu Nagar, Jaipur & Ors.

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...Applicants

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V/s

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Ashok Kumar Dalmia S/o Shri B.D. Dalmia presently residing at 12, Sharti Nagar, Yamuna Path, Shyam Nagar, Jaipur & Anr.

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...Non-Applicants

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Date of Order::21.10.2016

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HON'BLE MR. JUSTICE ALOK SHARMA

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Ms. Sonal Singh, for the Official Liquidator. Mr. Rajendra Salecha, for the respondents.

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The matter comes up on an application under Section 454 (5) of the Companies Act, 1956 (hereinafter 'the Act of 1956').

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The facts of the case are that one M/s. Ashoka Oil Products Private Limited was wound up by this Court on 29.03.1996 in Company Petition No.4/1991. Prior thereto, the Official Liquidator attached to this Court was appointed as Provisional Liquidator on 23.03.1991.

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Section 454 (3) of the Act of 1956 provides that where an Official Liquidator has been appointed as a provisional liquidator, of a company subject to a winding up

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petition, a statement of affairs of the company shall be filed within 21 days therefrom or within such extended time not exceeding three months as the Court may direct for special reasons. So too where a winding up order qua a company has been passed and an Official Liquidator appointed thereto. Failure to file requisite statement of affairs entails, amongst others, the Ex-Directors of the company being liable under Section 454 (5) of the Act of 1956 for prosecution. Default if found at their instance is punishable with imprisonment for a term which may extent to two years and/or a fine upto Rs. 1000/- per day effective 13.12.2010.

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Admittedly, the respondents Mr. Ashok Kumar Dalmia and Mr. Raj Kumar Banka on the date of appointment of Official Liquidator i.e. on 23.03.1991 as also on the date of winding up of M/s. Ashoka Oil Products Private Limited i.e. on 29.03.1996 were directors. Admittedly they have failed to file the requisite statement of affairs of the company now in liquidation. Their application for dispensing with the filing of the statement of affairs under Rule 133 read with Rule 9 of Companies (Court) Rules, 1959 filed before this Court on 09.01.2015 has been dismissed vide order dated 10.04.2015.

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In the course of the trial for the offence under Section 454 (5) of the Act of 1956 the Official Liquidator in his evidence stated that despite the appointment of the provisional liquidator on 23.03.1991 and despite the subsequent winding up order dated 29.03.1996 in Company

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Petition No. 4/1991, the statement of affairs of the company in liquidation was not filed by the accused-Directors Mr. Ashok Kumar Dalmia and Mr. Raj Kumar Banka in breach of their statutory obligation and even despite notice/letter dated 16.04.1991 and dated 09.07.1996 at his instance. Thereupon vide order dated 13.02.1997 this Court in company misc. application no. 19/1997, authorized the Official Liquidator to file prosecution against them under Section 454 (5) of the Act of 1956. It was further stated that neither the statement of affairs was filed nor the books of accounts and other statutory records of the company in liquidation handed over to the Official Liquidator. Consequently the Official Liquidator has been obstructed in the discharge of his statutory duty to proceed with the dissolution of the company. It was also stated that the directors' application under Rule 133 read with Rule 9 of Companies (Court) Rules, 1959 was dismissed on 10.04.2015 on a finding that that there was no reasonable excuse/cause for them for not having complied with provisions of Section 454 (3) of the Act of 1956 and not filing the statement of affairs of the company in liquidation. The Official Liquidator was put to cross-examination but remained unshaken.

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The respondents accused Mr. Ashok Kumar

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Dalmia and Mr. Raj Kumar Banka laid their evidence in defence and stated that M/s. Ashoka Oil Products Private Limited was incorporated on 12.08.1987, the business was

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soon set up and commenced in Kherli, District Alwar. Till 31.03.1988 the business of the company went on smoothly and accounts for the financial year 1988 were prepared and finalized. Subsequently difficulties in the operation of the business of the company cropped up because of the company's inability to cope with the changing market dynamics. Losses resulted and non-payment of creditors followed. The Directors of the company were terrorized by the suppliers of raw materials for reason of non-payment of dues. They were put at gun-point and made to execute sale deeds of the immovable properties standing in the name of company in favour of the debtor's towards recovery of the alleged outstanding amounts payable to them. The said sale deeds were however quashed and set aside by the Company Court under Section 446 of Act of 1956 having been declared to a nullity for reason of being executed after the winding up order without the permission of the Company Court. It was submitted that owing to the circumstances prevailing at the time relevant to the appointment of the Official Liquidator and thereafter the winding up of the company, the respondents were not able to access the factory premises and the records and accounts maintained there. The statement of affairs could therefore not be filed before the O.L. It was submitted that no notice was received from the O.L. to file the statement of affairs of the company in liquidation. It was stated that in the aforesaid peculiar facts

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and circumstances of the case the statement of affairs of the company in liquidation could not be filed. Reasonable excuse thus being available for non-filing of the statement of affairs, no offence under Section 454 (5) was made out.

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In the cross-examination both the respondents admitted that they were Directors of the company at the time the O.L. was appointed to be the company's provisional liquidator and at the time of passing of winding up order on 29.03.1996.

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Ms. Sonal Singh appearing for the O.L. submitted that from the evidence on record is quite apparent that the respondents despite being directors of the company in liquidation did not file the statement of affairs required under Section 454 (3) of the Act of 1956 submitted within 21 days of the appointment of the provisional liquidator and not even at any time thereafter, following the winding up order dated 29.03.1996. She submitted that the evidence on record reflects the fact that the respondent directors' application for dispensing with filing of the statement of affairs under Rule 133 read with Rule 9 of Companies (Court) Rules, 1959 having been dismissed by this Court on 10.04.2015 finding no reasonable excuse for non-filing of the statement of affairs, the respondents are clearly guilty under Section 454 (5) of the Act of 1956. Counsel submitted that consequently the case before this Court is an open and shut case which the defence evidence of the respondents was not

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able to dislodge. It was submitted that the respondents be convicted for the offence under Section 454(5) of the Act of 1956 and be adequately punished therefor as the non-filing of the statement of affairs disrupts and delays the dissolution of the company in liquidation subsequent to the passing of the winding up of order and also raises the spectre of the directors of the company in liquidation enriching themselves vis-a-vis the creditors/shareholders of the concerned company.

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Per contra, Mr. Rajendra Salecha, Counsel appearing for the respondents submitted that from the evidence of record it is clear that the respondents could not file the statement of affairs of the company in liquidation for reason of extraordinary circumstances that came to attend the business failure of the company. The terror unleased by the creditors of the company particularly the unpaid suppliers resulted in the respondents fleeing for their lives. The factory premises where the books of account of the company were maintained was not safely accessible. He submitted that the company in liquidation was the first corporate venture of the respondents and even before the respondents, residents of Bihar could find their feet in Rajasthan they were, within two years of commencement of business, faced with a serious economic meltdown and huge pressure from the creditors. It was submitted that the dismissal of the application under Section 133 of the Rules of

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1959 was at the preliminary stage without regard to the defence evidence which is now on record. On that evidence reasonable cause for non-filing of the statement of affairs of the company in liquidation is made out. Hence the respondents be acquitted. It was prayed that in the event the respondents were held guilty under Section 454 (5) of the Act of 1956, instead of a terms of imprisonment, a fine be visited upon them as the alleged contravention is issue is fundamentally of a regulatory provision.

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Heard. Considered.

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From the evidence on record it is well proved

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that the statement of affairs of the company in liquidation has not been at all filed, what of within the time prescribed under Section 454 (3) of the Act of 1956 following the appointment of the provisional liquidator and the subsequent winding up order. No reasonable excuse therefor is made out from the defence evidence on record. The case set up by the respondents of fleeing Rajasthan for reason of threats by unpaid suppliers/creditors is not supported by any documentary evidence. No FIR or criminal complaint was filed by the respondents in that regard. I am therefore disinclined to find any credence to the defence aforesaid. Further the statement of affairs has yet not been filed as even today. The application laid by the respondents under Order 133 read with Rule 9 of the companies (Court) Rules has also been earlier dismissed on 10.04.2015. No

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reasonable cause for non-filing of statement of affairs has been found therein. Nothing in the defence of the respondents in the present proceedings warrants taking of a different view.

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The importance of filing of the statement of affairs of the company wound up in the dissolution of company cannot be over emphasized. The starting point for the dissolution process of company in liquidation begins with the filing of statement of affairs. Therefrom the O.L. gets the requisite information with regard to the assets and liabilities of the company in liquidation. The assets are then to be taken possession of, liquidated and liabilities as identified paid therefrom. The structure of limited liability of a company registered under the Act of 1956 is not to be used as a shield by the directors. The limited liability under the Act of 1956 comes along with attendant obligations as defined therein for running of a company. Public interest demands that the conditions attached to the running of a company be religiously adhered to. This includes regularly maintaining the accounts of the company and filing the requisite statement of affairs before the O.L. if the circumstances so unfortunately warrant. An incorporated company being a juristic person, its death by way of winding up/dissolution has to entail a proper legally mandated structured burial ensuring that its assets are not misappropriated and creditors and other stakeholders not cheated.

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From the evidence on record, I am of the considered view that the respondents directors Mr. Ashok Kumar Dalmia and Mr. Raj Kumar Banka are guilty of an offence under Section 454 (5) of the Act of 1956.

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The court was inclined to adjourn the matter for hearing on the sentence.

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Mr. Salecha appearing for the respondents however prayed that the matter be heard on the issue of sentence today itself. He prayed that this Court take a lenient view in the facts of the case and visit the respondent directors with a fine alone without a term of imprisonment as lies in the court's discretion. He submits that the mitigating factors available should inform this Court while determining the punishment. Such factors are that the respondents had at the relevant time moved from Bihar to Rajasthan for business in view of availability of the raw material for the business of oil extraction. The respondent however did not find the requisite professional help in Alwar to inform them in their first brush as directors of a company, of their obligations under the Act of 1956 and the necessity of safely preserving accounts of the company outside the factory premises and in their safe custody which were to be utilized inter alia for the purpose of filing of statement of affairs of the company in the event of its winding up. It was submitted that the company was registered on 12.08.1987 and thereafter worked only for about a period of 2 years. The winding up

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petition was filed in the year 1991 and the O.L. was appointed as Provisional Liquidator on 23.03.1991. Further the respondents, as directors of a failed company faced serious threats to their life from unpaid creditors. In the overall facts and circumstances of the contravention of Section 454 of the Act of 1956 a liberal view be taken by the Court and instead of sentence by way of a term of imprisonment, the alternative provided in law itself, that of a fine as provided under Section 454 (5) be visited upon the respondents. Mr. Salecha on instruction then submitted that in the event of as a aggregate fine upto Rs.5,00,000/(Rs.2,50,000/- for each of the respondent director) being imposed for contravention of Section 454 (3) of the Act of 1956, the respondents would have no objections.

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Ms. Sonal Singh appearing for the O.L. fairly stated that, indeed ordinarily on a finding of guilt under Section 454 (5), a fine is being visited upon the guilty by this Court and other Company Courts across the country.

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Consequently in the facts of the case, even while holding the respondents in contravention of and guilty for an offence under Section 454 (5) of the Act of 1956. I would instead of sentencing them to a term of imprisonment visit the two respondent directors with a fine of Rs.2,00,000/each. Additionally Rs.1 Lac be deposited jointly/severally by the respondent directors in the Common Pool Fund of the Official Liquidator as prosecution cost.

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The aforesaid amount of Rs.4 Lacs fine to be deposited with the Deputy Registrar (Judicial). He on receipt of the fine is directed to process it as per Rule 110 of the General Rules (Criminal), 1980.

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The amount as directed above both towards fine and prosecution costs be deposited within a period of 30 days from the date of receipt of a certified copy of this judgment. Failing deposit of the fine each of the respondents i.e. Mr. Ashok Kumar Dalmia and Mr. Raj Kumar Banka would be liable to suffer two months simple imprisonment. Non deposit of prosecution cost shall entail proceedings for contempt of Court.

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The application stands disposed of accordingly.

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(ALOK SHARMA), J

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Karan Himanshu Soni

Official Liquidator M/Sa Ashok v. Ashok Kumar Dalmia and Ors.

Case brief

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What did the court decide?

Official Liquidator M/Sa Ashok v. Ashok Kumar Dalmia and Ors.

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