Pawanta Sahib Cement Works (P.) Ltd. (In Liquidation) vs Anil Saini and Others

Citing Reference:

N.K. Sodhi, J.—This criminal complaint under Sub-sections (5) and (5A) of Section 454 of the Companies Act, 1956 (hereinafter called "the Act"), has been filed by the official liquidator attached to this court against seven persons who were said to be the directors of Pawanta Sahib Cement Works (P) Ltd. (now in liquidation and referred to hereinafter as "the company") on the allegations that these accused without reasonable excuse failed to submit to the official liquidator a statement as to the affairs of the company in the prescribed form.

The company was incorporated as a private limited company on November 22, 1982. On a petition filed by a creditor under Sections 433 434 and 439 of the Act, it was ordered to be wound up by this court on March 14, 1991, and the official liquidator attached to this court was appointed its liquidator, After the receipt of the winding up order the official liquidator is said to have issued notices to the accused on April 16, 1991, calling upon them to file the statement of affairs but in spite of this the accused have failed to do the needful as contemplated u/s 454 of the Act. According to the prosecution, the default committed by the accused in this regard was without any reasonable excuse and they have thereby committed an offence punishable under Sub-section (5) of Section 454 of the Act.

The accused appeared before this court and denied the commission of any offence as alleged. Accused No. 1 stated that the records of the company were lost in March, 1990, and he had lodged a report with the police in this regard. It was for this reason that he could not file the statement of affairs. The other accused stated that Mr. Anil Saini, accused No. 1, was the managing director of the company and that he had in his possession the books of the company and it was he who had to file the statement of affairs, Accused No. 6 also stated that he became a shareholder in the company in June, 1990, and had never been its director and, therefore, it was not for him to file any statement of affairs.

The prosecution in support of its case produced the official liquidator as CW-1 and a dealing assistant from the office of the Registrar of Companies, Jalandhar, was produced as CW-2, The official liquidator stated that soon after the receipt of the winding up order he issued notices to the accused who, according to him, were the ex-directors of the company. The notices were sent on April 16, 1991, and exhibit CW-1/1 is a copy of the said notice. He further stated that despite these notices the accused did not file the statement of affairs. According to this witness, the accused never sought extension of time for filing the said statement nor have they shown any cause for not filing the same. He admitted in his cross-examination that the notices sent to the accused came back undelivered. CW-2, the dealing assistant from the office of the Registrar of Companies, Jalandhar, brought with him the summoned record and named the six founder-directors of the company at the time of its incorporation, He also placed on record copies of Form No. 32 indicating the changes that were brought about in the board of directors of the company from time to time. Exhibit CW-2/1 to exhibit CW-2/11 are these forms. This is all the evidence that has been produced by the prosecution. From a reading of the statements of the two witnesses and after perusing the documents produced by them the following facts stand established :

(i) That the official liquidator sent registered notices to the accused for filing a statement of affairs but these notices were received back undelivered and the accused were never served.

(ii) The accused were directors of the company for the period mentioned hereinbelow :

(a) Mr. Anil Saini was the managing director right from the inception of the company till the date of its winding up.

(b) Mrs. Inderjit Ghuman, Shri Bhupinder Singh Cheema and Shri Madan Mohan Saini were the directors of the company from March 1, 1985, up to March 1, 1990 ;

(c) Capt. Deepak Saini was the director of the company from March 1, 1985, up to June 29, 1987 ;

(d) Mr. Kulwant Singh Pawar was an additional director from March 1, 1990, till the date of winding up ;

(e) Mr. Bikram Singh Uppal was a director of the company from March 15, 1990, till the winding up of the company.

From what has been stated above it would be clear that except accused Nos. 1, 6 and 7, the other accused were not the directors of the company on the date of its winding up and that they had ceased to be the directors for more than a year prior to the Winding up.

Under Sub-section (5) of Section 454 of the Act, if any person, without reasonable excuse, makes default in complying with any of the requirements of this section he can be punished with imprisonment for a term which may extend to two years or with fine or both. The persons who are required to comply with the requirements of Section 454 are those mentioned in Sub-section (2) thereof.

Sub-section (2) of Section 454 of the Act requires that a statement as to the affairs of the company shall be submitted and verified amongst others by one or more of the persons who are at the relevant date the directors of the company. The relevant date, according to Sub-section (8) of Section 454, means the date on which a provisional liquidator is appointed and in a case where no such appointment is made the date of the winding up order. In the present case, no provisional liquidator was appointed and, therefore, March 14, 1991, on which date the company was ordered to be wound up would be the relevant date. On this date, accused Nos. 2 to 5 were not the directors of the company and, therefore, they were not required to file the statement of affairs. The prosecution has thus failed to prove that these accused were the directors of the company on the date of its winding up. They are, therefore, not guilty of having committed any offence under Sub-section (5) of Section 454 of the Act.

Now, as regards, accused Nos. 1, 6 and 7, the prosecution has established that they were the directors when the company was wound up. This is clear from Form No. 32, which are exhibits CW-2/1 to CW-2/11. It is not even the case of these accused that they were not the directors on the said date. From the statement of the official liquidator who appeared as CW-1 it has also been proved on the record that no statement as to the affairs of the company has at all been filed. These accused who were required to file the statement have, therefore, committed default. However, a plain reading of Sub-section (5) of Section 454 of the Act makes it clear that a mere default in complying with the requirements of this section is by itself not punishable and the term "default" has been qualified with the words "without reasonable excuse". It means that only a default made without reasonable excuse is punishable. "Without reasonable excuse" means an excuse which does not appeal to the reason of a prudent man. In other words, a default committed for which the accused has a reasonable excuse is not punishable under this provision. The onus of proving that a default was committed and that too without reasonable excuse undoubtedly lies on the prosecution. As observed by a Full Bench of the Delhi High Court in Security and Finance Private Ltd. (In Liquidation) Vs. B.K. Bedi and Another, , the official liquidator in order to prove the ingredients of the offence under Sub-section (5) of Section 454 of the Act "need only prove that notice was sent to the concerned director to submit a statement of affairs, that the prescribed time has lapsed and that no extension has been sought for from him or from the court and that the necessary books of the company were available for inspection by the concerned director. These facts are conveniently available to the official liquidator and if he shows these facts prima facie he would have proved that the director has, without reasonable excuse, made the default in complying with the requirements of Section 454. In such a case it would obviously be for the concerned director to prove circumstances to justify his conduct and to show that he had a reasonable excuse in making the default."

In the present case, the prosecution has failed to prove that the books were available to the directors for preparing and submitting the statement of affairs. On the other hand, the defence of the accused is that the books were lost and the matter was reported to the police, vide D.D.R. No. 7, dated April 5, 1990, a copy of which is on the record as exhibit DW-1/1.

Mr. Amit Sethi, appearing for the official liquidator, strenuously contended that the accused have come out with a cock and bull story regarding loss of records only with a view to escape their liability for prosecution. The defence version that the books were lost is supported by the fact that the loss was reported to the police. It is true that a report of the type contained in exhibit DW-1/1 can be lodged at any time with impunity but the prosecution too on its part has not led any evidence to show that the books were available with the directors for the purpose of preparing the statement of affairs. The onus was on the prosecution and since it has not been discharged the prosecution case must fail and the accused are entitled to the benefit of doubt. Again, it is not established on the record that even the notices for the submission of the statement of affairs as sent by the official liquidator were ever served on the accused. The notice, exhibit CW-1/1, was sent to the accused and admittedly none of them was served and they were received back undelivered.

For the reasons recorded above, the accused are acquitted.