Re-Hoffland Finance Ltd Vs

Jayant Nath, J

CA Nos. 652/2007 & 1445/2013

This winding up petition is filed by Reserve Bank of India under Section 45 MC of the RBI Act seeking winding up of the respondent Company. It

has been stated in the petition that the respondent company is a non-banking financial company and has been found to be in grave default of the

depositors. On 12.10.1999, this court appointed the Official Liquidator (hereinafter referred to as the ‘OL’) as the Provisional Liquidator.

This court on 10.09.2004 under section 457(v) noted that the office of the OL would not be fully equipped to expeditiously undertake the enormous

task required to complete the winding up process of the Hoffland Group of Companies. The court appointed a Committee.

Both these applications are filed by Goga Foods Limited. CA 652/2007 is filed by the said Goga Foods Limited seeking a direction that the said

applicant company is not a part of the Hoffland Group of Companies and, therefore, be deleted from the list of companies being treated as part of

Hoffland Group of Companies. Direction is also sought that no action be taken against the land, building and properties of the applicant company. CA

1445/2013 is also filed by Goga Foods Limited for a direction to frame issues and allow the parties to lead evidence on the question involved i.e.

whether Goga Goods Ltd. can be treated as part of the Hoffland Group of Companies/whether its assets were bought out of funds belonging to

Hoffland Finance Ltd.

The case of the applicant is that it was incorporated in the year 1991-92 under the Companies Act, 1956. Shri B.B.Sharma (also the promoter of

Hoffland Finance Ltd.) was initially subscriber to the Articles of Association of the Company. The company is engaged in packaging of milk for

Mother Dairy Foods Processing Limited. In 1991-95 the applicant bought land in village Khekra, District Baghpat, U.P. where the factory premises

was constructed. The promoter Shri B.B.Sharma resigned on 7.3.1995 and Form 32 was filed with the Registrar of Companies. Hence, he was left

with no concern with the applicant company. It may be noted that Shri B.B.Sharma is also the promoter of the Hoffland Group of Companies. In May

1996 the general public subscribed to the shares of the applicant company to the tune of Rs.274.75 lacs.

It is further pleaded that in 2003 a new management took over the said company. They cleared the dues of Dena Bank to the tune of Rs.64 lacs,

carried out extensive renovations and spent amounts on security etc.

The final winding up order of Hoffland Finance Limited was passed by this court on 3.4.2003.

It is pleaded that the applicant company noticed some officials were trying to demarcate the land of the applicant company and the neighbouring

land of Hoffland Finance Limited and Hoffland Engineers Limited pursuant to orders passed by this court. It is pleaded that at present the said

applicant company has no connection with the Hoffland Group of Companies. Initially Shri B.B.Sharma was the promoter and was running the

applicant company. However, he has exited in 1995 and transferred his shares and resigned on 7.3.1995. It is further stated that being a public limited

company there is investment of more than 2.75 crores of public at large, it is not connected with the Hoffland Group. Hence, the present application.

CA No.1445/2013 substantially reiterates the above contentions stated in CA 652/2007. It has been pleaded that despite the fact that the applicant

company has no connect with the Hoffland Group of Companies, the Court Appointed Committee is insisting that the applicant company is part of the

Hoffland Group of Companies. Hence, it is pleaded that in a claim of this nature disputes of serious nature have arisen. It would be appropriate that

this court may frame issues and allow the parties to lead evidence.

Mr.B.B.Sharma, the promoter of the applicant has also filed a reply. In his reply he had stated that he had promoted a large number of companies

being about 30 and that 90% of the funds required for business of all these companies came from public deposits received in Hoffland Finance

Limited. He further pleaded that not only was the office, furniture, telephone common of the Hoffland Group including the applicant Goga Foods

Limited, the staff was also common. The same staff members used to work for the Hoffland Group and for Goga Foods Limited. Goga Foods Limited

had no independent business or independent income. All properties in Khekra Village were purchased through Mr.B.B.Sharma in the name of Goga

Foods Limited with the amount of public deposits received by Hoffland Finance Limited. For this purpose, funds were routed through Hoffland

Engineers to Goga Foods Limited. Further it is stated that the land of the two companies, namely, Hoffland Engineers Limited and Goga Foods Limited

is contiguous and interspersed to such an extent that there are many khasra Nos. purchased in the name of Hoffland Engineers Limited and some

portion of the same land has been purchased in the name of Goga Foods Limited. No demarcation has been done in such cases. It is stated that shares

amounting to Rs.1.65 crores of Goga Foods Ltd. most of which were allotted without any cash coming to the company Goga Foods Limited.

In 1995-96 day to day functioning of Goga Foods Limited was handed over to the brother of Shri B.B.Sharma, namely, Shri V.K.Sharma. No

consideration of any sort was paid by Shri V.K.Sharma. It is admitted that Shri B.B.Sharma resigned from Directorship of Goga Foods Limited in

March 1995. It has been pleaded that though Mr.B.B.Sharma had resigned from Directorship of Goga Foods Limited on 7.3.1995 yet land was also

purchased in his name for Goga Foods Limited thereafter from the farmers in Khekra, Baghpat. He continued to operate the bank accounts of Goga

Foods Limited.

It is pleaded that out of 200,100 shares owned by him of Goga Foods Limited Mr.Sharma transferred no share to anybody. No transfer deeds are

available to show transfer of the shares by Mr.Sharma. It is further claimed that while Shri B.B.Sharma was in judicial custody, in 2003 one

Mr.K.K.Jain and his brother Mr.Arvind Singh fraudulently became Directors of Goga Foods Limited in connivance with one Mr. Om Vir Singh. They

forged relevant records and transferred in their own names the whole of share capital of Rs.5.8 crores.

The Court Appointed Committee has also filed a reply broadly reiterating the same facts. It has been reiterated that on 5.9.2008 this court had

directed Goga Foods Limited to submit complete details of the transactions, instruments of transfer, payment of monetary consideration and other

particulars which have not been done till date. Subsequently, in 2013 an affidavit was filed of Shri Kailash Chand Jain which did not contain details as

sought for by the Court by its order dated 5.9.2008 and subsequent orders. This court on 19.7.2013 taking into account the entire background rejected

the submission of Goga Foods Limited to refer the matter for recording of statement of deponents and cross-examination. This order has attained

finality. Hence, the question of asking parties to lead evidence would not arise. It has been reiterated that there is nothing placed on record to show

existence of any resources of Goga Foods Limited which enabled the said company to buy the lands in question.

I have heard learned counsel for the parties. Parties have also filed written submissions. Mr. Ravinder Sethi, learned senior counsel appearing for

the applicant Goga Foods Limited has pleaded as follows:-

(i) It has been strenuously pleaded that no evidence has been led by the Official Liquidator or the Committee to show that any money belonging to the

Hoffland Group was used by Goga Foods Limited. No books of accounts of Hoffland Finance Limited have been produced to show transfer of funds.

It is pleaded that the OL claims the land for the respondent Company, so the onus is on it to prove its contentions.

(ii) It has further been pleaded that the sale deeds of the property in question are in favour of Goga Foods Limited. The property is in possession of

Goga Foods Limited. The cash receipts in the name of Goga Foods Limited are available with the applicants. A total consideration of Rs.9 to 10 lacs

was paid and about 100 sale deeds were executed in 1992-95. In these facts the title of Goga Foods Limited to the said land cannot be disputed.

(iii) It is further stated that merely because Mr.B.B.Sharma has before the Court Appointed Committee made some statements claiming that funds

were transferred to Goga Foods Limited from Hoffland Finance Limited would not suffice to divest the applicant of the title to the land in question. It

is further stated that even if this court were to believe the statement of Mr.B.B.Sharma then the claim of the said Mr.Sharma would be barred under

the Benami Transactions (Prohibition) Act.

(iv) It is further stated that there are serious disputed questions of fact and hence this court must permit the applicant to lead evidence. Reliance is

placed on judgment of the Division Bench of this court in Company Appeal No.65/2006 dated 30.05.2008 titled Empire Trading Company vs. Express

Hi Tech Private Limited & Ors., to contend that the court held that where serious nature of contentions are raised it was imperative for the Company

Court to have framed issues, allowed evidence to be recorded. Reliance is also placed on judgment of this court in the case of Ram Saran Das vs Raj

Kali, 1968(4) DLT 10 to submit that the presumption is in favour of the apparent or ostensible title holder. Similarly, reliance is placed on judgment of

the Supreme Court in the case of Valliammal (D) By LRs vs. Subramaniam & Ors., 2004(7) SCC 233 to contend that there is a presumption in law

that the person who purchased the property is owner of the same. The court also held that the heavy burden lies on the person who pleads that the

recorded owner is a Benami holder.

Learned senior standing counsel for the OL Mrs.Ruchi Sindhwani has submitted as follows:-

(i) That three of the companies, namely, Goga Foods Limited, Hoffland Engineers Limited and Hoffland Remedies Limited from the funds of Hoffland

Finance Limited bought the land in the area in question between 1991-95. Reliance is placed on the reports of the Economic Offences Wing to

confirm the said fact.

(ii) It is further pleaded that the land of the three companies as noted above including Goga Foods Limited are intertwined in a manner to show that

the same entity bought the land. This is apparent from the report of the SDM.

(iii) It is further pleaded that the balance sheet of Goga Foods Limited for the year 1991-95 show that the company was suffering losses as there was

no profit. There was also no business being conducted by the company. As there was no business and no profit there was no question of Goga Foods

Limited being able to raise adequate funds to buy the land in question. Clearly, the land has been bought from the funds of Hoffland Finance

Mr.Sanjeev Ralli learned counsel appearing for the Court Appointed Committee has pointed out that the said factory of Goga Foods Limited has

land measuring 22,623 sq.meters out of which 5257 sq.meters is in the name of Hoffland Engineers Limited. This is also confirmed by the Valuer

appointed by this Court “ITCOT Consultancy and Services Ltd.â€. Clearly, the land has been purchased by a Single entity, namely, the Hoffland

Group. It is further pleaded that the present Directors of Goga Foods Limited are not known, no details have been filed.

Reliance is placed on section 542 and 543 of the Companies Act, 1956 to submit that the company court would have powers to take over the assets of

the respondent company Hoffland Finance Limited which includes the land claimed by Goga Foods Limited.

Mr.Ravinder Sethi, learned senior counsel appearing for Goga Foods Limited has reiterated that the sale deed of the properties of Goga Foods

Limited, the receipts are all in the name of Goga Foods Limited, possession of the land is with Goga Foods Limited. The factory was built by Goga

Foods Limited. It is pleaded that these facts are sufficient to throw the onus on the OL/Committee/Mr.B.B.Sharma. In the absence of any positive

proof it is pleaded that the said persons have no case against the land belonging to Goga Foods Limited.

Some of the admitted facts of this case are that the land was purchased in 1991-95 in the name of Goga Foods Limited through Mr.B.B.Sharma

the then Director. Mr.Sharma was also the promoter and a Director of Hoffland Finance Limited. There are about 100 sale deeds executed in favour

of Goga Foods Limited from the land owners. All payments for purchase of the land have been made in cash. Mr.B.B.Sharma resigned on 7.3.1995

as director of Goga Foods.

Before proceeding further, I may look at the legal position in this regard. Reference may be had to Sections 541 and 542 of the Companies Act,

1956 which read as follows:-

“541. LIABILITY WHERE PROPER ACCOUNTS NOT KEPT

(1) Where a company is being wound up, if it is shown that proper books of account were not kept by the company throughout the period of two years

immediately preceding the commencement of the winding up, or the period between the incorporation of the company and the commencement of the

winding up, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the

circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which

may extend to one year.

(2) For the purposes of sub-section (1), it shall be deemed that proper books of account have not been kept in the case of any company, if there have

not been kept â€

(a) such books or accounts as are necessary to exhibit and explain the transactions and financial position of the business of the company, including

books containing entries made from day to day in sufficient detail of all cash received and all cash paid; and

(b) where the business of the company has involved dealings in goods, statements of the annual stocktakings and (except in the case of goods sold by

way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and the sellers thereof in sufficient detail to enable

those goods and those buyers and sellers to be identified.

LIABILITY FOR FRAUDULENT CONDUCT OF BUSINESS

(1) If in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors

of the company or any other persons or for any fraudulent purpose, the court on the application of the Official Liquidator, or the liquidator or any

creditor or contributory of the company, may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of

the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the

company as the court may direct.

On the hearing of an application under this sub-section, the Official Liquidator or the liquidator, as the case may be, may himself give evidence or call

witnesses.

(2) (a) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that

declaration.

(b) In particular, the court may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due

from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in

him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf.

(c) The court may, from time to time, make such further order as may be necessary for the purpose of enforcing any charge imposed under this sub-

section.

(d) For the purpose of this sub-section, the expression ""assignee"" includes any person to whom or in whose favour, by the directions of the person

liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for

valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of

which the declaration is made.

(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in sub-section (1), every person who was

knowingly a party to the carrying on of the business in the manner aforesaid, shall be punishable with imprisonment for a term which may extend to

two years, or with fine which may extend to fifty thousand rupees, or with both.

(4) This section shall apply, notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the

declaration is to be made.â€​

A Coordinate Bench of this court in the case of M.R. Bakshi vs. Fintra Systems Ltd., 2008 (151) DLT 1 on Section 542 of the Companies Act,

1956 held as follows:-

“10. Having considered the respective submissions I am, as at present advised, inclined to agree with the submissions of Mr. Rajiv Shakdher, Sr.

Advocate the learned Amicus Curiae. Keeping in view the purpose for which Section 542 has been enacted, and the fact that timely action is of the

essence, not only to prevent the presentation of a fiat accompli by the fraudulent Directors of the company, but also to provide relief to the victims of

the fraud, it seems that the establishment of the fraudulent conduct for attracting the provision of Section 542 of the Companies Act does not require

the same standard of proof as in a criminal trial and the rigours of the law of evidence as apply to a criminal trial would not apply to establish the

commission of fraudulent acts and omissions by the Directors and managers of a company. It has also to be kept in mind that by its very nature, fraud

is not easy to establish. This is even more so, when the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office,

with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct,

and may have no personal knowledge of the same. In K.T. Dharanendrah v. R.T. Authority AIR 1987 SC 1321 the Supreme Court, while dealing

with a case under the Customs Act, 1962 observed that “An economic offence is committed with cool calculation and deliberate design with an

eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the

cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the

quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest.â€​

I also find merit in the submission of Mr. Shakdher that it is not necessary that each transaction/instance of funds being siphoned or fraudulent

conduct needs to be established from the beginning to the end to invoke Section 542 of the Act. That is because it would be reasonable to assume, that

directors/managers who are shown to have indulged in even a single act of fraud in the discharge of their duties towards the company, its shareholders

and creditors, would have generally resorted to such conduct. Traits of greed and dishonesty amongst men are known to manifest whenever the

opportunity presents itself. This is even more true, when such conduct is displayed by the relatively affluent members of society, as their conduct is not

driven by their need or undertaken in desperation. The pattern that emerges from the conduct of Mr. & Mrs. Shakt shows that their actions were

focused on collecting funds in the company from the public by promising huge returns, and then siphoning them out in one way or another. That seems

to have been the true “business activity†of the promoter Directors and managers of the company. No other business appears to have been

conducted by the company with a view to earn profits for the company, its shareholders and creditors. In the aforesaid process, the entity of the

company has been misused and exploited.

From the aforesaid reports of the CBI, prima facie it appears to me that this is a fit case for holding the directors of the company in liquidation

personally liable, without any limitation of liability. Section 542 is an exception to the general rule that in a limited liability company, the liability of the

shareholders and directors is limited. The purpose and object of Section 542 is to catch up with the fraudulent directors and other persons responsible

for defrauding the creditors and shareholders of the company, who deliberately conduct the affairs of the company in a manner as to rob the company

of its resources and allow it to bleed. Conduct, which does not appear to be bona fide or innocent, or a mere judgmental error, but which personally

enriches the Directors/managers of the company directly or indirectly at the expense of the company, permits the Courts to take away the protective

shield that the directors/manager enjoy under the law. The shield of corporate entity with limited liability of the shareholders/Directors, provided by the

law is not meant to protect fraudsters. They cannot be permitted to defraud the shareholders and the public through the instrumentality of a corporate

entity with limited liability, and then mock at their shareholders and creditors and the Courts, and seek to protect themselves behind the veil of the

Corporate Entity. The law is not toothless, but empowers the Courts with authority to deal with such situations.â€​

The Supreme Court in Official Liquidator vs. Parthasarathi Sinha and Others, (1983) 1 SCC 538 held as follows:-

“18. The liability arising under the misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act

amounting to breach of trust should make good of the loss. Section 543 of the Act does not really create any new liability. It only provides for a

summary remedy for determining the amount payable by such person on proof of the necessary ingredients. The section authorises the court to direct

such persons chargeable under it to pay a sum of money to the company by way of compensation. This is not a provision intended to punish a man

who has been found guilty of misfeasance but for compensating the company in respect of the loss occasioned by his misfeasance. Whenever there is

a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liability on the death

of the wrong-doer. When once the liability is declared it is open to the Official Liquidator to realise the amount due by resorting to Section 634 of the

Act and Section 50 of the Code of Civil Procedure. In Tendolkar case [(1973) 1 SCC 602] this Court did not consider the effect of Section 634 of the

Act which made the relevant provisions of the Code of Civil Procedure relating to execution of decrees applicable to orders passed by the court under

the Act.â€​

Reference may also be had to the works of the learned Author “A Ramaiya, Guide to the Companies Act, (17th Edition 2010)†where while

dealing with Section 542 of the Act, it is stated as follows:

“A person can be held liable for fraudulent trading, if he assisted in the commission of the fraud. It is not necessary that he should be actively

involved in the management of the company. The court said that as a matter of ordinary language the section was not restricted to those who

performed a managerial role. Moreover, the legislative history of the provision pointed towards a wider interpretation, extending not only to a person

who carried on business or assisted in the carrying on of the liquidated companyâ€s business but also to a person who had participated in the

fraudulent acts of the company Morris v. Banque Arabe et Internationale d’investment SA (No2): [2001] 1 BCLC 263.â€​

Clearly, given the manner in which fraudulent acts are undertaken under deceit and camouflage, if done with the affairs of a company, the

standard of proof required to prove such fraudulent conduct would necessarily be less stringent.

I may now see some of the facts brought on record by the OL and by the Committee which the applicants have not been able to rebut or explain.

The said facts are now spelt out:

[I]

I may first take note of statements made by Mr.B.B. Sharma, admittedly the promoter of the applicant Company when the lands in question were

bought, namely, for the period 1991 to 1996. The statements had been recorded before the Committee constituted by this court and were recorded on

various dates. In the statement dated 18.07.2016, he clearly states that these properties were bought in the capacity of the Managing Director of these

companies and the source of funds were the deposits of the depositors of Hoffland Finance Ltd.

No doubt, the applicants do not accept these statements and state that these are mere self-serving statements which do not have any evidentiary

value. However, given these allegations, in my opinion, it was for the applicants to have placed on record appropriate documents and records to show

that the properties in question have been bought from the internal resources of the Company. This would be the best evidence to rebut the contentions

of the OL and others and to settle the matter in favour of the applicant. The applicants have however failed to do the needful.

[II]

Another important fact is that the applicants have placed on record some balance sheets. The applicants have placed on record the balance sheets

of Goga Foods Limited for the year 1991-92 till 1993-94 i.e. the period when most of the land in question was bought. A reading of the balance sheet

reveals interesting facts. The balance sheet for the year 1991-92 shows a loss of Rs.97,088.70/-. There is no income shown. For the year 1992-93 the

Profit and Loss Account shows an income through commission and interest of Rs.4,42,555.11/- and a gross profit of Rs.14,520.80/-. Similarly for the

next Financial year, namely, 1993-94 an income again through commission and interest is shown as Rs.5,84,832.29/- and the gross profit is shown as

Rs.50,004.48/-. It is manifest that the said Goga Foods Limited at that time was doing no work. The balance sheet is a dressed up balance sheet to

show some nominal profit. There is no explanation as to from where this commission that has been shown as income was earned. The meager profits

earned do not justify or show any funds available for purchase of the land in question.

Clearly, the balance sheets show that the applicant lacked the wherewithal to have purchased the said immovable properites in 1992-1995.

[III]

Another important aspect which comes out from the submissions made by the OL and the Committee Appointed by the court is the manner in

which the properties have been purchased. It has been stated by the OL, which aspect is not denied by the applicants, that the lands in question in

Village Khekra, District Baghpat of Goga Foods Ltd. and Hoffland Engieers Ltd. are interspersed and it is difficult to separate the two. A map as

given by the SDM has been placed on record to demonstrate the above submision. It has futher been pointed out that the factory of Goga Foods Ltd.

has 22623 sq. meters land out of which 5257 sq. meters land is in the name of Hoffland Engineers Ltd. Further, land in the name of Goga Foods Ltd.

is also situated outside the factory premises. Meaning thereby, no demarcation was attempted to be made to identify spearately the lands that belong

to Goga Foods Ltd. and the land that belongs to Hoffland Engineers Ltd. There is no explanation how the applicant is sitting on land belonging to

Hoffland Engineers Ltd. and has taken it as part of the factory. The map which has been filed by the OL which is said to have been given by the

SDM is as follows:-

The portion in blue belongs to Goga Foods Ltd. while the portion in red belongs to Hoffland Engineers Ltd. The factory premises is delineated by a

yellow line. The above map clearly demonstrates the stand taken by the OL about the absence of any proper demarcation while purchasing the land

as to which land belongs to Goga Foods Ltd. and which land belongs to Hoffland Engineers Ltd. Land of Hoffland Engineers is also within the factory

premises of Goga Food Ltd. Land in the name of Goga Food Ltd. is also scattered outside the factory premises.

Admittedly, the applicant has not laid any claim on this land situated outside the factory premises. In fact, on 18.11.2010, a statement was made on

instructions by the learned senior counsel for the applicant that they have no objection if the land situated outside the factory but in the name of Goga

Foods Ltd. is sold and proceeds are used to pay the depositors of Hoffland Finance Ltd. It is manifest that the applicant have shown no interest in the

land purchased in the name of the applicant Goga Foods Ltd. which is located outside the factory premises since the last 25 years.

The manner of purchase of the land clearly demonstrates that one entity, namely, the Hoffland Group purchased the same.

[IV]

I may also mention that the OL has relied upon the statement of the Economic Offences Wing to show that the funds have also been transferred

to Goga Foods Ltd. Relinace has been placed on a communication receivd by the court from the Deputy Commissioner, Economic Offences Wing

which states that the property of Goga Foods Ltd. is a part of the Hoffland Group and that a sum of Rs. 5,20,000/- was transferred to the accounts of

Goga Foods Ltd. for the said purpose.

[V]

Another imporant aspect in this case is the manner in which the applicants have refused to divulge details and information to this court. It has been

claimed by the applicants that in 2003 the new management of the company has taken over. The new management has claimed to have made huge

investments in the company and paid the creditors, cleared the dues of Dena Bank and carried on extensive renovation and spent huge amounts on

security etc.

It is an admitted fact that the company when it was formed was controlled by Mr.B.B.Sharma who was the promoter of the applicant company and

Hoffland finance Limited. It is an admitted fact that Mr.B.B.Sharma resigned in 1995. At that time he held substantial shares in Goga Foods Limited

being the promoter of the same. In his statement dated 20.6.2007 recorded before the Committee Constituted by the Court he has said that he held

more than 2 lac shares in Goga Foods Limited having face value of Rs.10/- and that the shares have never been transferred to anyone else. He also

states that the original of these shares alongwith transfer deeds were kept in private safe deposit vault in South Delhi by the Chief Manager but the

whereabouts of the Chief Manager are not known. Thereafter the said Mr. B.B.Sharma has been in custody for a long time. The present

management claims to have bought the shareholding in 2003. No details are provided as to how and from whom the present management bought the

shareholdings in 2003. There is no detail given as to how from 1995-2003 the shareholding and management of Goga Foods Limited was transferred

out of the hands of Mr. B.B.Sharma and was bought by the present management. The present management when they took over in 2003 must have

purchased shares from somebody and paid valuable consideration. Records of the applicant Company would reflect all these transactions.

Nothing is placed on record. The best evidence which was in possession of the applicants has been hidden from the court.

The aforenoted conduct of the applicants is further apparent on seeing the orders passed by this court. On 05.09.2008 this court passed the

following order:-

“1. Time is sought to file the rejoinder to the reply filed by the committee. Let the same be filed within four weeks. The same shall include a

complete explanation of the manner and mode in which the sale consideration(s) have been effected or paid by the applicant to the erstwhile owners

of the property which are the subject matter of the sale deeds enclosed with the application.

The applicants shall also give complete details of the transactions, instruments of transfer, payment of monetary consideration including particulars

of cheque numbers with regard to any other land over which M/s Goga Foods Ltd. is claiming the ownership, but the committee alleges as having

been the purchased out of the fund of Hoffland Finance Ltd. Copy of all the bank accounts, statement of account of the bank, details of bank

instruments in respect of these transactions and duly audited account(s) in this behalf shall be placed on record.

The applicant shall also placed on record all relevant revenue records in this behalf.

Having regard to the nature of the claims made by the applicant as well as on behalf of the applicant company, it is directed that all parties shall

maintain status quo with regard to title, possession and construction on all land(s) which are alleged to have been purchased out of funds of M/s

Hoffland Finance Ltd.

Copy of this order shall be served by this committee upon the concerned police station(s) the revenue authorities and the registrar(s) of documents.

It is made clear however that the running of the factory by M/s Goga Food Ltd. has not been prohibited in any manner.

Interim orders passed earlier by this order shall continue till the next date.

xxxâ€​

Despite several orders no such details were filed by the applicants. Finally after much lapse of time the applicant filed the affidavit of Shri Kailash

jain. This court, however, rejected the affidavit on 19.7.2013 stating as follows:-

“11. On a careful consideration of the rival arguments, I am of the view that Mr. Ralli is right in his submission that this Court is not bound to

receive the affidavit in evidence if it does not strictly conform to the directions of this Court in its order dated 05.09.2008 reiterated in the later order

dated 21.05.2013. It is not the case of the learned counsel for the GFL that the affidavit contains all the requirements as directed by orders of this

Court referred to above. He has not drawn my attention to the Bank statements, statement of account with the Banks and the Bank instruments,

which were directed by this Court to be filed with the affidavit. The directions of this Court have to be scrupulously complied with. The purpose of the

affidavit is to give an opportunity to GFL to show the source of funds for the acquisition of the land. The entire matter emanates from the

apprehension expressed by the Official Liquidator that the funds of HFL were siphoned off and utilised in purchasing assets for sister concerns

including GFL. This apprehension is recorded in the order of this Court passed on 05.12.2003 in Company Application No.777/2003 in Company

Petition No.351/1999. It is only those documents or records which will show the source of funds for the acquisition of the assets that would be

relevant to be read along with the affidavit. It is only on this basis that this Court, in its order dated 05.09.2008, directed GFL to file the affidavit

accompanied by the Bank statements, statement of account with the Bank and the Bank transfer instruments as well as the audited accounts. No

doubt the filing of the balance sheets may throw light on the position of the assets and liabilities of GFL on a particular date; however, the balance

sheet by itself cannot throw any light on the source of acquisition of the lands. By filing documents which are not relevant and which cannot throw

light as to the source of funds, GFL cannot be permitted to delay the proceedings further. It is a matter of grave concern that for a period of almost

five years GFL chose not to act and comply with the directions of this Court vide order dated 05.09.2008. Though this order was passed in its

presence, GFL failed to bring to the notice of the Court that its old records had been allegedly stolen in April, 2008. It is difficult to believe that the

omission to mention this to the Court was an inadvertence or oversight. This fact was brought to the notice of the Court for the first time on

21.05.2013 and that did annoy this Court considerably. There is no explanation why the bank statements, statement of account with the bank, bank

instruments, etc. could not be obtained from the banks even if it is true that old records were stolen. Now the applicant has come forward to file the

affidavit, after a period of almost five years from 05.09.2008, and that too without the documents that were directed to be filed along with the

affidavit. The intention of the applicant, in the above circumstances, appears to be not bona fide. It seems to be a ploy to delay the proceedings. I,

therefore, agree with the contention of the learned counsel for the committee that taking the affidavit on record and directing the cross-examination of

the deponent would be nothing but a waste of time. Nothing is to be gained from looking at the balance sheets, the sale documents, the receipts issued

by the persons from whom the lands were acquired, etc., because the acquisition of the lands by GFL is a fact which is not in dispute. The details

given in the affidavit only reiterate this fact. What is in dispute is the source of acquisition and that can be located with precision only from the Bank

statements, statements of account with the Bank, details of Bank instruments, etc. In their absence the affidavit would serve no useful purpose.

Having regard to the facts of the present case, I do not consider it necessary to discuss the judgment of the Division Bench of this Court (supra).

For the above reasons I do not see any reason for taking the affidavit, as presently filed, on record.â€​

It clearly follows from the above order that the applicant company has been unable to explain the source of funds for acquisition of the land. The

applicant has not been able to show bank statements, the statement of accounts, Bank Instruments etc. Despite several opportunities the records

which would normally be in the power and possession of the applicants have been deliberately hidden from the court. This clearly raises a strong

suspicion about the acts and conduct of the applicants.

Reference in this context may be had to the judgment of the Supreme Court in Union of India vs. Ibrahim Uddin, 2012 8 SCC 148 where the

Supreme Court held as follows:-

“12. Generally, it is the duty of the party to lead the best evidence in his possession, which could throw light on the issue in controversy and in case

such material evidence is withheld, the court may draw adverse inference under Section 114 Illustration (g) of the Evidence Act notwithstanding, that

the onus of proof did not lie on such party and it was not called upon to produce the said evidence.[Vide Murugesam Pillai v. Manickavasaka Pandara

[AIR 1917 PC 6], Hiralal v. Badkulal [AIR 1953 SC 225] , A. Raghavamma v. A. Chenchamma [AIR 1964 SC 136], Union of India v. Mahadeolal

Prabhu Dayal [AIR 1965 SC 1755] , Gopal Krishnaji Ketkar v. Mohd. Haji Latif [AIR 1968 SC 1413], BHEL v. State of U.P. [(2003) 6 SCC 528],

Mussauddin Ahmed v. State of Assam [(2009) 14 SCC 541] and Khatri Hotels (P) Ltd. v. Union of India [(2011) 9 SCC 126].]

xxxx

Thus, in view of the above, the law on the issue can be summarised to the effect that the issue of drawing adverse inference is required to be

decided by the court taking into consideration the pleadings of the parties and by deciding whether any document/evidence, withheld, has any

relevance at all or omission of its production would directly establish the case of the other side. The court cannot lose sight of the fact that burden of

proof is on the party which makes a factual averment. The court has to consider further as to whether the other side could file interrogatories or apply

for inspection and production of the documents, etc. as is required under Order 11 CPC. Conduct and diligence of the other party is also of paramount

importance. Presumption of adverse inference for non-production of evidence is always optional and a relevant factor to be considered in the

background of facts involved in the case. Existence of some other circumstances may justify non-production of such documents on some reasonable

grounds. In case one party has asked the court to direct the other side to produce the document and the other side failed to comply with the court's

order, the court may be justified in drawing the adverse inference. All the pros and cons must be examined before the adverse inference is drawn.

Such presumption is permissible, if other larger evidence is shown to the contrary.â€​

In the present case as noted above, despite directions of this court dated 5.9.2008 and subsequently, the applicants have failed to produce relevant

documents to show the details. Clearly, this court would draw an adverse inference against the applicants for having withheld from the court the most

relevant documents/important documents to show that it is not a part of the Hoffland Group and the funds for purchase of the land in question were

not of the Hoffland Group but of the applicant company.

A strong plea that has been raised by the learned senior counsel for the applicant that the conclusion should not be drawn against the applicant

without an opportunity to the applicant to lead evidence after framing of issues. This plea is misplaced. As already noted above this court had on

19.07.2013 rejected the affidavit filed by the applicant pursuant to the orders of this court dated 05.09.2008. This court noted that the affidavit filed by

the applicant five years after the order of the court without relevant documents is a ploy only to delay the proceedings. This court rejected the

contention of the applicant seeking cross-examination of the deponent as it was noted that nothing can be gained from looking at the balance sheets,

the sale documents, the receipts documents because the acquisition of the land by Goga Foods Ltd. is a fact which is not in dispute. In my opinion, the

said plea of the applicant already stands rejected and the said order has attained finality.

That apart, it is clear that the plea of the applicants lacks bona fide. The best evidence was available with the applicants which they have chosen

not to place on record. Only as a mechanism and ploy to delay the proceedings this desperate plea is being taken that this court may frame issues and

record evidence. I see no merit in the said contention.

Another plea has been raised by Ld. Sr. Counsel for the applicant is that if the contentions of the OL are accepted then the land in question would

fall within the parameters of a benami property. This plea was not elaborated in the course of the arguments. Even otherwise the nature of

transactions in issue is such that the provisions of the Benami Transactions (Prohibition) Act, 1988 would not be attracted.

In view of the above, in my opinion there is no merit in the present applications. The same are dismissed. OL is free to take steps regarding the

property as per law.