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Judgment
Anand Byrareddy, J.—Heard the learned Counsel for the applicant and the learned Counsel for the respondents. The present application u/s 543(1) of the Companies Act, 1956 (Hereinafter referred to as" the ''Act'', for brevity), read with Rule 260 of the Companies (Court) Rules, 1959 is filed in the following background:-
That M/s. Rekha Cements and Chemicals Limited, the company in liquidation was ordered to be wound up on 2.4.2002 in Company Petition No. 105/1995. The Official Liquidator was appointed as the liquidator of the company. The present application is filed within the time prescribed u/s 543(1) of the Act.
The company was incorporated in the year 1985 as a private limited company with its registered office at Gulbarga. The authorised share capital of the company in liquidation was Rs. 5,00,00,000/- divided into 5,00,000 equity shares of Rs. 10/- each and the issued, subscribed and paid-up capital was Rs. 1,20,52,000/- divided into 12,05,200 equity shares of Rs. 10/- each.
The main objects of the company was to inter alia produce, and manufacture the same. The respondents were the ex-directors of the company as on the date of the winding up and were looking after the business affairs of the company/It is contended that they are jointly and severally responsible to account for the assets, properties and effects of the company and therefore, they were called upon to submit the Statement of Affairs and books of account and other statutory records of the company and were issued notices to remind them of the same. Since no Statement of Affairs were filed as on the date of the application, the present application:-
The contents of the document are as follows:
That as per the Balance Sheet as on 31.3.2000, filed by the ex-directors, the fixed assets and inventories were valued at Rs. 5,76,82,490.18. Further, the Karnataka State Industrial Investment Development Corporation, which was a secured creditor, had proceeded to take possession of the assets of the company u/s 29 of the State Financial Corporations Act, 1951, seeking to stand outside the winding up and according: to the valuation of the said Corporation, the assets of the company were valued at Rs. 81.39 lakh as on the date that possession was taken and therefore, the difference in the value of the assets in a sum of Rs. 4,95,43,490.18 was liable to be made good by the ex-directors of the company.
Secondly, it is claimed that as per the balance sheet, there were loans and advances mentioned totalling to Rs. 11,00,694.37 and that the respondents had failed to remit the amount and furnish full details with necessary supporting documents. It is also noticed that a general purpose loan was obtained by respondent no. 1 in violation of Section 295 of the Companies Act, 1956. This was specifically pointed out by the auditors in their report dated 2.9.2000 and therefore, the Official Liquidator claims that he is not in a position to recover the said amount.
Thirdly, the cash and bank balances were mentioned as Rs. 14,29,403.23 and the respondents had failed to remit the said amount and hence they are liable to make good the loss.
Fourthly, as per the balance sheet of 31.3.2000, the investment was mentioned at Rs. 35,100/-, but no details were furnished with supporting documents about the investment.
Fifthly, it is claimed that there is a claim towards an amount of Rs. 5,15,026/- mentioned against the sundry debtors and no details are famished about the same. Hence, the said amount was claimed as interest.
A total sum of Rs. 5,26,23,713.78 with interest at 18% per annum is claimed, which the respondents are to account for and to make good.
It is on this basis that the present application is filed. The same has been contested by the respondents who have filed their statement of objections.
Respondent no. 1 in particular, has tendered evidence in support of his statement of objections. Firstly, it is pointed out that insofar as the valuation of the assets vis-�-vis the balance sheet of the year 2000 and the valuation report said to have been adopted by the Karnataka State Small Industries Development Corporation Limited (KSSIDC) on the date that it took possession of the assets of the company is not forthcoming. It is not clear as to the basis on which the KSSIDC has proceeded that the assets were valued at Rs. 81.39 lakh and therefore, in the absence of particulars of such valuation, the difference that is straight away claimed from the respondents cannot be said to be tenable.
Insofar as the claim towards the loans and advances in a sum of Rs. 11,00,694.37 is concerned, it is contended that respondent no. 1 had furnished the details of loans and advances in the Statement of Affairs as on the date of the winding up and it was only in a sum of Rs. 2,92,169/-, which was furnished as per Schedule-F to the Balance Sheet. This has not been taken into consideration by the applicant. The respondent no. 1 claims to have repaid the entire loans and advances borrowed by him to the company in a sum of Rs. 2.97 lakh during the year. 2000-01. And as on the date of the winding up order, the company was in fact, indebted to the first respondent to the tune of Rs. 3,00,000/- and this amount had been deposited at the time the matter was pending before the Board of Industrial and Financial Reconstruction (BIFR). There is a total sum of Rs. 25,00,000/- with the UCO Bank and major contribution of the said sum was by the first respondent and therefore, it cannot be said that the loans and advances, as claimed, are tenable. The figures are adopted from the balance sheet of 31.3.2000 which may not be relevant insofar as the winding up order of the year 2002.
Insofar as the claim towards the cash balance is concerned, as on the date of the winding up order, there was no bank balance and the claim towards Rs. 14,29403.23 is only on the basis of the balance sheet of the year 2000, which is again not tenable. Insofar as the investment of Rs. 35,000/- is concerned, the same is made with the telephone and water supply departments. No receipts are available and are incapable of being produced. The first respondent, in any event, would not be liable for the same.
Even insofar as the amount of Rs. 5,26,23,713.78 is concerned, it is pointed out that the claim is made only with reference to the balance sheet and as on the date of the winding up order, to the knowledge of the respondents, and as per the records, there were no such sundry debtors and hence the entire claim was on the premise of rough quantification of the alleged losses, which is without any basis.
The evidence has been recorded in line with the statement of objections.
By way of reply, the learned Counsel for the Official Liquidator would reiterate that it was for the respondents to substantiate their defence and mere questioning the basis of the calculation would not be sufficient in the absence of production of the complete books and records of the company. The mere denial of the application would not advance the case of the respondents and that the defects in the statement of affairs are not cured in the absence of the same being substantiated with books of records and other materials.
In the light of the above rival contentions, and on the basis of the evidence that is tendered, insofar as the first item of claim is concerned, as rightly pointed out by the learned Counsel for the respondent, the difference between the balance sheet of the year 31.3.2000 and the valuation report of the KSSIDC being the basis on which the balance of Rs. 4.95 Crore is claimed as the amount to be made good by the respondents, cannot be accepted on the face of it. The valuation report of the KSSIDC is not forthcoming and it is not evident that the valuation report would relate to the assets and inventories which were the basis for the amount of Rs. 5.76 crore, as per the balance sheet of 31.3.2000. It was incumbent on the Official Liquidator to have substantiated his claim by production of the valuation report of KSSIDC and demonstrate that the same refers to the very assets and inventories which were the subject matter of the balance sheet of the year 2000. The winding up order being of the year 2002 is also a factor, which requires to be kept in view. Therefore, the first item of claim is not sound and cannot be substantiated.
Insofar as the second, third, fourth and fifth items are concerned, are again in relation to the amounts reflected in the balance sheet of the year 2000, where as there is much that has occurred in the meanwhile and as per the material that is sought to be relied upon by the respondents, there was no such amount either towards the loans and advances or towards the cash and bank balances or sundry debtors, which could be substantiated and on the other hand, there was indication that the company in liquidation owed the respondent no. 1 in a sum of Rs. 3,00,000/- from the material on record.
Insofar as item no. 4 is concerned, which relates to the deposits made towards the telephone and water supply connections, the same relates to the early period of incorporation of the company and absence of any receipts in respect of the same cannot be found fault with.
In the above facts and circumstances, it cannot be said that the application is substantiated as the very claim is apparently on a surmise that the amounts are to be accounted for. As per the language of Section 543 of the Companies Act, 1956, the allegations of misapplication, misfeasance or breach of trust would have to be substantiated with specific details and the allegations are to be of a nature which can be met by the directors and answered specifically. The very claim being on surmises, it cannot be said that the respondents were obliged to explain the same as they did not relate to the relevant period and is completely based on a balance sheet, which was two years earlier to the date of the winding up order and cannot reflect the true state of affairs as on the date of the winding up order which would be the relevant period, to which any such allegations would be pertinent.
Therefore, the application lacks merit and is dismissed.