Allowed

Subhas Mukherjee, v. The Official Liquidator

Telangana HC6 Nov 2013OSA/55/2006

Case brief

AI extract

What is this about?

A Division Bench allowed appeals filed by an ex-director of a wound-up company. The court set aside the single judge's order dismissing the director's plea to quash prosecution and remanded the matter for fresh consideration after taking into account a report by the Regional Director regarding his tenure and liability.

What did the court decide?

The order dated 27.09.2006 dismissing the application for discharge was set aside. The application was remanded to the Company Court for fresh consideration taking into account the Regional Director's

Subhas Mukherjee, Vs The Official Liquidator — Company and Corporate | Telangana HC (2013)

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THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

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AND

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THE HON’BLE SRI JUSTICE M.S.K.JAISWAL

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O.S.A.Nos.55 of 2006 and 5 & 6 of 2007

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COMMON JUDGMENT: (Per the Hon’ble Sri Justice L.Narasimha Reddy)

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M/s. ITC Agrotech Finance & Investments Limited, Secunderabad (for short ‘the Company’), is a Public Limited Company. One Mr.Samir J. Sheth of Mumbai filed C.P.No.4 of 1999 before this Court under Section 433 of the Companies Act, 1956 (for short ‘the Act’) for winding up of the company, on the ground that it failed to discharge its debt towards him. After conducting a detailed trial, this Court passed an order, dated 20.06.2001 directing winding up of the Company. Alleging that the

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Ex-Managing Director and Directors of the Company, did not file statement of affairs within time and as required under Section 454 of the Act, the Official Liquidator (OL) filed C.A.No.1512 of 2003 with a prayer to direct prosecution of the Ex-Managing Director and Directors under Section 454 (5) and (5A) of the Act.

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The appellant herein joined the Board of Directors of the Company in 1998 and he is said to have resigned in June, 2000. He was shown as one of the respondents in C.A.No.1512 of 2003. During the course of trial of that application, the appellant filed C.A.No.1078 of 2006 with a prayer to dismiss C.A.No.1512 of 2003, in so far as it relates to him. He pleaded that by the time the order of winding up was passed, he ceased to be the Director of the Company and he cannot be held liable, either to file the statement of affairs, nor be prosecuted. The application was opposed by the OL. Through order,

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dated 27.09.2006, learned Company Judge dismissed the application. Hence, the appellant filed O.S.A.No.55 of 2006.

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The appellant filed C.A.No.1182 of 2006 to recall PW.1 and a separate application in C.A.No.1512 of 2003 with a prayer to reopen the evidence. Both the applications were dismissed on 27.12.2006 and 15.11.2006, respectively. O.S.A.Nos.5 and 6 of 2007 are filed against the said orders.

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Sri D.Prakash Reddy, learned Senior Counsel for the appellant, submits that the delay in submitting the records or filing of the statement of affairs was on account of non-availability of the records of the company and as soon as they were traced, not only the relevant records were filed, but also the statement of affairs was submitted. He contends that though at one point of time, the Company Court directed enquiry by CBI into the affairs of the Company, in the appeal, a Division Bench of this Court had set aside the same and in its place, an enquiry by the Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai, was ordered. According to the learned Senior Counsel, the said Regional Director had submitted a report, dated 20.06.2008, after conducting a detailed enquiry as ordered by this Court, and it was found that the appellant ceased to be the Director from June, 2000 onwards. He contends that the OL paid more attention to prosecute the persons, who were otherwise not responsible, than to take steps in accordance with the Act and the Rules made thereunder.

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Sri M.Anil Kumar, learned Standing Counsel for the OL, on the other hand, submits that every step taken by the OL was either thwarted or prevented by the previous management of the Company, and as a result, no substantial development has taken place in the proceedings for quite a considerable time. He contends that the application filed by the appellant is similar to one for quashing

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prosecution or for discharging from a criminal case or quashing the FIR and such a facility is not available under the provisions of the Act and the Rules made thereunder. He further submits that the learned single Judge has taken correct view of the matter, and the same does not warrant any interference.

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The order directing winding up of the Company has assumed finality, and further steps are in progress. Section 454 of the Act places obligation on the erstwhile management of the Company, to file statement of affairs, once an order of winding up of the company is passed. The purpose thereof is to enable the OL to know the state of affairs, be it as regards the extent of assets or liabilities, so that, he can apply the assets to discharge the liabilities, as provided for in law.

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It may be true that there was substantial delay in submitting the statement of affairs. The reasons appear to be many. According to the appellant, the records were stored at Bombay and by the time, they could be traced, there was some delay.

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The Company Court took, prima facie, view that there was deliberate suppression of records by the erstwhile management and the Directors were not acting as required under law. Obviously for that reason, an enquiry by the CBI was ordered. The matter did not rest at that. A Division Bench of this Court substituted enquiry by the Regional Director, Southern Region of Company affairs.

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Not only the appellant herein, but also several others were sought to be prosecuted in C.A.No.1512 of 2003. The appellant wanted to extricate himself from the prosecution by pleading that he ceased to be a Director by the time the Company was directed to be wound up. According to him, he submitted the resignation from June, 2000 and from the date of submission of resignation, he ceased to be a Director. This, however, did not weigh with the learned single Judge.

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He took the view that the details as to submission or acceptance of resignation were not entered in the relevant records of the Registrar of Company and till that is done, the appellant would continue to be a Director.

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The prosecution of an Ex-Director in the proceedings for winding up is a rare event. Once the Court passes an order for the winding up of a Company, the OL virtually takes over the entire Company. He replaces the management and becomes the custodian of the assets. All the assets are at his disposal and with the permission of the Company Court, he can apply them, to clear the liabilities. The Board of Directors stand displaced completely. The limited role assigned to them is to apprise the OL of the details of the assets, liabilities and other aspects by filing a statement of affairs. In case any deficiencies are noticed in the statement of affairs, the OL can certainly seek necessary clarification with the Directors and undertake his own enquiry. If it is found that the assets have been deliberately misapplied or misappropriated, the Directors can certainly be prosecuted, on proof thereof. In the instant case, the proceedings are at the stage of the statement of affairs and verification thereof. Prosecution no doubt was launched alleging certain lapses and the appellant wanted to be discharged in those proceedings.

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The report submitted by the Regional Director was not available before the learned single Judge. The contents thereof would have certainly a bearing upon the role that can be said to have been played by the appellant, and be helpful to determine the extent of his liability in this behalf. We are of the view that the matter can be remanded to the learned Company Judge, for considering the C.A.No.1078 of 2006 afresh, duly taking into account, the report dated 20.06.2008 submitted by the Regional Director.

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It hardly needs any mention that once the application for discharge is remanded, the further proceedings in C.A.No.1512 of

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2003 in so far as they are directed against the appellant herein shall stand deferred. In the event of the appellant herein not being discharged, the applications for recall of PW.,1 and reopening of the evidence, shall be considered afresh.

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The appeals are accordingly allowed. The order, dated 27.09.2006, in C.A.No.1078 of 2006 is set aside and the application is remanded to the learned Company Court for fresh consideration, duly taking into account the report of the Regional Director. It shall be open to the parties to rely upon any further material, if they intend to. There shall be no order as to costs.

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The miscellaneous petitions filed in these appeals shall also stand disposed of.

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____________________ L.NARASIMHA REDDY, J.

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_______________ M.S.K.JAISWAL, J.

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Date:06.11.2013 GJ

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THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY and

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THE HON’BLE SRI JUSTICE M.S.K.JAISWAL

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O.S.A.Nos.55 of 2006 and 5 & 6 of 2007 (Judgment of the Bench delivered by the Hon’ble Sri Justice L.Narasimha Reddy)

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Date:06.11.2013

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Subhas Mukherjee, v. The Official Liquidator

Case brief

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Subhas Mukherjee, v. The Official Liquidator

Case brief

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