Official Liquidator vs Surya Partap Singh and Others

G.C. Garg, J.—This criminal complaint has been filed by the official liquidator under Sub-section (5) of Section 454 of the Companies Act, 1956 (for short "the Act"), against Surya Partap Singh, Mukta Devi and Pardip Kumar Gupta, who were the directors and managing the affairs of Syp-Chem. (India) Pvt. Limited, now in liquidation (hereinafter referred to as "the company").

In a petition filed u/s 439(5) read with sections 433 and 434 of the Act, which was registered as C. P. No. 30 of 1989, the company was ordered to be wound up. The order of winding up was passed on March 30, 1990, and the official liquidator attached to this court was appointed as its liquidator.

On receipt of the winding up order dated March 30, 1990, the official liquidator issued notices to the ex-directors of the company on May 15, 1990, and May 18, 1990, calling upon them to file the statement of affairs of the company as required by Section 454 of the Act. The ex-directors failed to file the statement of affairs of the company in liquidation, even after a lapse of four months. It is averred in the complaint that the ex-directors did not move any application for extension of time for filing the statement of affairs with the official liquidator. They also did not move the High Court in that behalf. The further allegation is that the accused have without any reasonable excuse, knowingly and wilfully flouted the provisions of Section 454 of the Act and have, therefore, committed the offence punishable under Sub-section (5) of Section 454 of the Act.

On presentation of the complaint, the accused were summoned. They put in appearance and denied the commission of the offence alleged against them when their statements were recorded on January 17, 1991. The defence taken by Pardip Kumar, accused No. 3, was that he was not a director, manager or employee of Syp-Chem. (India) Pvt. Ltd. However, he had occasionally been helping the directors of the company in carrying out their business. He specifically denied that he was getting any remuneration or consideration for rendering such assistance, by the company. He further stated in his statement that he rendered assistance off and on between the years 1984 to 1988. He further stated that during his association with the company he was never entrusted with the books of account of the said company. All the accused, however, opted to lead evidence in their defence.

The official liquidator who is the complainant in this complaint appeared himself as PW-2 and also produced Har Parshad, an employee of the office of the Registrar of Companies, Delhi and Haryana, as PW-1 and Anil Arora, Branch Manager, Haryana Financial Corporation as PW-3. Har Parshad, PW-1, deposed on oath that on the dale of incorporation of the company, Yatinder Kumar Gupta, Surya Partap Singh and Mukta Devi were the first directors of the company. The witness further stated that Form No. 32 was submitted on July 7, 1988, showing the resignation of Surya Partap Singh and appointment of Pardip Kumar Gupta as a director of the company with effect from July 4, 1988, and the said form is exhibit P-1. In cross-examination, this witness stated that, according to the record of the office of the Registrar of Companies, Surya Partap was not a director of the company after July 4, 1988. H. S. Bawa, official liquidator, PW-2, in his examination-in-chief, reiterated the version as contained in the complaint. In the cross-examination he stated that he had not been able to get the record of the company because the company was under lock and key of the Haryana Financial Corporation.

Anil Arora, PW-3, stated that the properties of the company as detailed in exhibit PW-3/1 were taken over by the Haryana Financial Corporation on July 27, 1988. In the cross-examination he stated that Pardip Kumar Gupta signed the list of properties in the capacity of a guarantor and not as a director and that Surya Partap Singh signed against item No. 4 and the word "director" is written in different ink and in a different way and that he was present at the time of signing the said list. Thereafter, the complainant closed his evidence after tendering orders dated November 16, 1990, and November 29, 1990, in evidence as exhibits P-1 and P-2.

Surya Partap Singh, accused, appeared as his own witness as RW-1 in defence and stated that he was the director of the company in liquidation but resigned as such on June 10, 1988, and an intimation in that behalf was sent to the Registrar of Companies on July 4, 1988, which was registered on August 14, 1988, with the Registrar of Companies and he posted a letter to Mukta Devi who was the chairman of the company on June 10, 1988. thai he has resigned as a director. He stated that exhibit PW 1/1 is the original certificate issued by the Registrar of Companies indicating that Pardip Kumar Gupta was appointed as a director on the same day and his resignation was accepted and registered. In cross examination he denied the suggestion that he was withholding the account books because the same did not suit him. He did not attend any meeting of the board after submission of resignation. All the account books were lying in the house of Mukta Devi when he resigned and the day to day business was being conducted by Pardip Kumar Gupta. He denied the suggestion that he was the managing director of the company and was managing its affairs. The witness further stated that he did not remember when the meeting of the board of directors was called for the purpose of discussing his resignation and whether or not any resolution was passed effecting the change on June 10, 1988. The letter of resignation was sent by post and it was addressed to the chairman. He also denied the suggestion that he was present when the Haryana Financial Corporation took over the company. He, however, admitted that exhibit PW-3/1, the inventory of properties of the company, bears his signatures but stated that the word "director" is not in his handwriting. Exhibit PW-3/1 was signed by him at his house and not in the office of the company. He also denied the suggestion that he represented the company when the same was taken over by the Haryana Financial Corporation and that he continued to be a director of the company from its inception till its taking over by the Haryana Financial Corporation.

Pardip Kumar, accused, appeared as his own witness as RW-2. He stated that he was neither a shareholder of the company in liquidation nor he ever remained its director. He signed some of the cheques on behalf of the company as his mother was the director. He did so because his mother was ill and he signed on her behalf as he had been told that a resolution in that behalf was passed. He further stated that he signed exhibit PW-3/1 as a guarantor and he has no knowledge about the whereabouts of the account books of the company which earlier used to remain with the company. In the cross-examination he stated that he signed exhibit PW-3/1 in the presence of the officers of the Haryana Financial Corporation. He never became a director of the company. On learning the fact that his name was included as additional director, he gave in writing that he never became a director of the company. The company was being run by Surya Partap Singh and was closed in August, 1988. After possession was taken over, the premises were locked by the officers of the Haryana Financial Corporation. In the cross-examination by the official liquidator, he stated that Surya Partap Singh was not present at the time of taking over as he was ill and he did not know where his signatures were taken. His mother did not tell him at any time that he had been inducted as additional director. He was present at the time of taking over only because he was the guarantor on behalf of his mother and he used to help his mother who was the director of the company.

Mukta Devi, accused, also appeared as her own witness as RW-3. She stated that she was the director of the company but was not associated with the day to day working of the company being a lady director. Surya Partap Singh was not related to her but was the class fellow of her son. She had full faith in him in view of his friendship with her son and that she was primarily a house wife. In the cross-examination she stated that she did not know that the possession of the factory was taken by the Haryana Financial Corporation in July, 1988, and whether the records of the company used to be in the factory premises or not. The records, however, never remained with her and it was only Surya Partap Singh who used to get her signatures on the resolutions. She was not aware if Surya Partap Singh wrote her a letter on June 10, 1988, wherein he mentioned that he resigned as a director. She wrote a letter to the Registrar of Companies that it was wrong to say that Surya Partap Singh has resigned and it was not in her knowledge that he resigned as a director on July 4, 1988. She admitted her signatures on letter, exhibit RW-3/1, dated July 12, 1990. She denied the suggestion that the company was being run either by her or by her son. She also denied the suggestion that the records of the company were maintained by her and her son. In further cross-examination she stated that she did not know whether her son, Pardip Kumar Gupta, ever became a director of the company. On further cross-examination she stated that she never attended meetings of the board of directors and Surya Partap Singh used to obtain her signatures at her house and she used to sign the papers in good faith and confidence even without consulting her son.

This is all the evidence that has been produced by the complainant and the accused persons. The winding up order in this case was passed on March 30, 1990, which was received in the office of the official liquidator on May 7, 1990, but much before that the Haryana Financial Corporation took possession of the mortgaged properties of the company on July 27, 1988, vide exhibit PW-3/1, the inventory of the properties, which is admittedly duly signed by Surya Partap Singh and Pardip Kumar Gupta besides others and the Haryana Financial Corporation put its lock on the premises of the company. A look at the inventory aforesaid goes to show that the land was on lease with the company for a period of 15 years and various items of machinery (26 in number) were taken into possession. There is no mention against any of the items, possession of which was taken over by the Haryana Financial Corporation about the books of account of the company. The ex-directors of the company in liquidation are required to, file a statement of affairs within a period of 21 days of the winding up order which the accused failed to do. From the evidence led in this case, it has not been established on the record that the books of account were in the possession of one or the other directors. As already noticed, these were also not found at the factory premises. If the said books had been taken into possession by the Haryana Financial Corporation when it took over the possession of the premises of the company, on July 27, 1988, a reference in that respect must have appeared in the list of inventories.

Sub-section (5) of Section 454 of the Act provides that if any person without reasonable excuse makes default in complying with any of the requirements of the said section, he shall be punishable with imprisonment for a term which may extend to two years or fine which may extend to Rs. 100 for every day during which the default continues. A person as named in Sub-section (2) of Section 454 of the Act in order to escape from the rigour of Sub-section (5) of the said section, has to show that he was prevented by reasonable cause in complying with the requirement of the section. The accused before me, therefore, in order to escape liability are required to show that they were prevented by reasonable cause from filing the statement of affairs of the company. In other words, if the accused show reasonable cause in making the default, they are not liable to be punished. It thus implies that the complainant has to establish that the accused persons committed the default without reasonable excuse, before they are dealt with and punished under the provisions of Section 454 of the Act,

Learned counsel for the complainant placing reliance on Poomuli Manakkal Anujan Nambudiripad Vs. Official Liquidator, submitted that under the first part of Section 454(2) of the Act the persons who were the directors on the relevant date, i.e., the date of winding up in this case, viz., March 30, 1990, and the persons who on that date were the manager, secretary or other chief officers of the company are perforce required to submit and verify to the official liquidator the statement of affairs of the company, In the above premises, learned counsel submitted that the accused persons have failed to show that they were prevented by reasonable excuse from filing the statement of affairs of the company in liquidation within the time allowed by law or within the extended time and, therefore, they are liable to be dealt with and punished under the provisions of Section 454 of the Act for having failed to file the statement of affairs without reasonable excuse: According to learned counsel, the accused persons were directors of the company in liquidation on the date of passing of the winding up order and were looking after the affairs of the company on that date.

Shri L. M. Suri, learned counsel appearing for Surya Partap Singh, accused, submitted that he was not a director of the company in liquidation on the date of passing of the winding up order. He was not even a director of the company within one year before the passing of the winding up order. He was, therefore, not liable to file the statement of affairs and he resigned as director of the company in June, 1988, and his resignation was duly registered with the Registrar of Companies in July, 1988, whereafter he ceased to be the director of the company. In this behalf, learned counsel made a reference to the statement of Surya Partap Singh, RW-1, and Har Parshad, PW-1. He also placed strong reliance on the decision of this court reported as Haryana Electro Steel Ltd. (In Liquidation) v. Jagdish Gupta [1995] 3 PLR 507 ; [1996] 86 Comp Cas 99, wherein it was held that it is for the prosecution to initially prove that the books and the record of the company from where the statement of affairs could be prepared, were available or accessible to the directors and in the absence of such an evidence, the prosecution must be held to have failed to discharge its burden.

Har Parshad, PW-1, an official from the office of the Registrar of Companies clearly stated in his examination-in-chief that Form No. 32 was submitted on July 7, 1988, showing the resignation of Surya Partap Singh as director of the company with effect from July 4, 1988. He produced a copy of Form No. 32 as exhibit PW-1/1 evidencing that the resignation of Surya Partap Singh was registered with the office of the Registrar of Companies with effect from July 4, 1988. He thus ceased to be a director of the company with effect from that date which is one year prior to the date of winding up order. Moreover, it has not been proved by the complainant that the books of account of the company in liquidation were in the possession of Surya Partap Singh on the relevant date. Exhibit PW-3/1 is an inventory of the mortgaged property prepared on July 27, 1988, when the property of the company had been taken over by the Haryana Financial Corporation after the latter had failed to pay the dues of the said Corporation. This inventory is signed by Surya Partap Singh at item No. 4, but as admitted by Anil Kumar, PW-3, the word "director" has been written in different ink and in a different way. He thus on the strength thereof cannot be said to be a director of the company at the time of passing of the winding up order or even within one year prior to the date of the winding up order. Even otherwise, this inventory was prepared on July 27, 1988, whereas the winding up order was passed on March 30, 1990, i.e., much after the expiry of period of one year of the signing of the inventory, Once it is not shown or established that Surya Partap Singh was a director of the company at the time of passing of the winding up order or the ex-director during a period of one year prior to the date of winding up order or that he was in possession of the books of account of the company and liable to file statement of affairs, he cannot be held guilty and punished under the provisions of Section 454 of the Act.

Shri I. K. Mehta, senior advocate, learned counsel appearing for Pardip Kumar Gupta, accused, submitted that he never gave his consent for being appointed as director and in fact he was never appointed as director of the company. He even sent a reply to the Registrar of Companies that he was not a director of the company in liquidation. Learned counsel by reference to Section 264 of the Act submitted that a person desiring to be a director of the company has to give his consent in writing to act as director, if appointed. Learned counsel further submitted that no evidence whatsoever has been produced by the complainant on the file of this case to prove the absence of reasonable excuse on the part of Pardip Kumar Gupta and once that is so, he cannot be punished under the provisions of Section 454(5) of the Act as it is the duty of the complainant to prove the absence of reasonable excuse on the part of the accused before he could be punished as director or ex-director for not filing the statement of affairs of the company in liquidation. Support for the above contention was sought from the judgment of a Division Bench of this court in K.S. Mathura Dass v. State of Punjab [1977] 47 Comp Cas 467 ; [1977] PLR 362.

Har Parshad, PW-1, the official of the office of the Registrar of Companies, stated that Form No. 32 exhibit PW-1/1 was submitted on July 7, 1988, showing the resignation of Surya Partap Singh and appointment of Pardip Kumar Gupta as director of the company with effect from July 4, 1988. But for this evidence of PW-1, there is nothing on the record to show that Pardip Kumar Gupta was in fact inducted as director or additional director of the company. H. S. Bawa, official liquidator, appearing as PW-2, only stated that he sent notice to Pardip Kumar Gupta as the statement of affairs had not been filed. It has also not been shown or proved on record that this accused was in possession of the record of the company. Rather the official liquidator stated that he did not know whether the record was lying under lock and key of the Haryana Financial Corporation. He made no effort to find out after contacting the officials of the Haryana Financial Corporation as to whether the record of the company was lying in the factory premises, possession of which had been taken over by it on July 27, 1988. Exhibit PW-3/1, the inventory prepared at the time of taking over possession of the company by the Haryana Financial Corporation though is signed by Pardip Kumar Gupta as a witness but it is clearly proved on the record that he signed the inventory not as a director but in the capacity of a guarantor and it is so recorded under his name. If the said accused was a director in the year 1988, the word "director" would have appeared under his signatures and not guarantor. Pardip Kumar Gupta, appearing as his own witness in unequivocal terms, stated that he was never the director of the company and he signed exhibit PW-3/1 as a guarantor and that he was not aware about the whereabouts of the account books of the company and that he never gave in writing to the Registrar of Companies that he ever became director. He rather after coming to know that his name was included as an additional director of the company, he gave in writing that he never became director of the company. Thus, it is not proved that Pardip Kumar Gupta was ever a director of the company or was otherwise liable to file the statement of affairs of the company as contemplated by the provisions of Section 454 of the Act. Besides this, it is also not proved by the complainant that there was absence of reasonable excuse on the part of the said accused to file the statement of affairs of the company.

Mr. S. S. Mahajan, learned counsel appearing for Mukta Devi, accused, placed reliance oh Sham Sunder v. State of Haryana [1990] 67 Comp Cas 1 (P & H), and submitted that in the absence of proof that Mukta Devi, accused, was in charge of the business at the relevant time, she cannot be prosecuted and punished for the simple reason that she was one of the directors of the company at the relevant time. The evidence led in the case in unequivocal terms proves that Mukta Devi was a director of the company from the date of its inception till the date of the winding up order. Once that is so, it has to be taken that she was in possession of the books of account of the company in liquidation and liable to file the statement of affairs within the statutory period. Her only defence is that the affairs of the company were being looked after by Surya Partap Singh and she did not know anything being a housewife and was not associated with the day to day business of the company being a lady director. She even did not state while appearing as her own witness that she was not in possession of books of account of the company or that she was prevented by reasonable excuse from filing the statement of affairs. She as a director of the company was obliged to file the statement of affairs within the statutory period or to justify that she was prevented by reasonable excuse from doing so. In a situation like this, it cannot be said that the complainant has failed to show the absence of reasonable excuse on the part of the said accused in filing the statement of affairs. Undoubtedly, the burden to prove that absence of any reasonable excuse for making default is on the prosecution in the first instance as the absence of reasonable excuse has 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 weeks from the date of this order and in the eventuality of default in the payment of fine, she will undergo simple imprisonment for a period of four months. As regards Surya Partap Singh and Pardip Kumar Gupta, it is held that the prosecution has failed to establish on record that these two accused have committed default without any reasonable excuse or that they were the persons liable to file the statement of affairs. This being so, these two accused are acquitted of the charges framed against them.