Sarkar Estates (P) Ltd. vs Gostho Behari Sarkar

Datta, J.—On or about May 11, 1964, this application was made by the Official Liquidator for orders that (a) this Hon''ble Court may take cognizance of the offence committed by the Respondents by reason of their non-compliance with the provisions of Section 454(1) of the Companies Act, 1956 and this Hon''ble Court may be pleased to try the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure, 1888, for the trial of summons case by a Magistrate, (b) if this Hon''ble Court comes to a finding on such trial that the Respondents or any of them are guilty of the said offence, then the said Respondent be punished in accordance with the provisions of Section 454(5) of the Companies Act, 1956, (c) in the alternative, the said Respondents be directed to file their statement of affairs within the time to be fixed by this Hon''ble Court and (d) the said Respondents be directed to make over the books of account, records, papers and documents of the company forthwith to the Official Liquidator and various other orders.

In 1945, the Sarkar Estates (P) Ltd. was incorporated. On September 7, 1959, a petition for winding up was filed. On March 4, 1960, a winding up order was made but the same was not to take effect for three weeks. On April 2, 1960, the Official Liquidator took symbolical possession of the registered office of the company. On July 19, 1960, an order was made on the application of the Official Liquidator inter alia, directing the ex-directors to make over possession to the Official Liquidator all the books, records and assets of the company within seven days of the date of the order. On August 29, 1960, the key of the door of the registered office was handed over to the Official Liquidator. He, however, did not get actual possession of the office rooms, the office books and records and assets. On or about February 22, 1961, the Official Liquidator demanded delivery of the books, papers and documents. On April 7, 1961 Pulin Behari Sarkar, the Respondent No. 3, stated through his solicitors that Pulin Behari Sarkar was never in possession of the books, records and documents and that the same were kept and maintained by Gostho Behari Sarkar. On April 25, 1961, the Official Liquidator renewed his demand for delivery of possession of the registered office of the company along with its books, records, documents and assets. On April 29, 1961, the Respondent No. 3 referred back to his earlier letter dated April 7, 1961. On May 20, 1961, Gostho Behari Sarkar wrote a letter through his solicitors stating, inter alia, that the office of the company is situate in the room in possession of Gostho Behari Sarkar, but the same room is full of his personal belongings and further threatened the Official Liquidator. On June 20, 1961, the Official Liquidator renewed his demand for the possession of the books, records and assets of the company and further required the Respondents to file a statement of affairs within 24 hours. On June 26, 1961, it appears that the Judge''s Summons was taken out. On February 3, 1962, the Official Liquidator took possession of the registered office by opening it but found no books, records and assets of the company therein. On May 11, 1964, an order was made by his Lordship the Hon''ble Mr. Justice B.C. Mitra in this application inter alia, directing Gostho Behari Sarkar to file the statement of affairs within four weeks from date. The order was, however, made without prejudice to the contentions of Gostho Behari Sarkar that the other directors are also bound to file the statement of affairs. Thereafter, this application came up for hearing before me.

Mr. Bikash Sen, learned Counsel appearing for the Respondent No. 3, Pulin Behari Sarkar, sought to resist the orders prayed for on more than one ground, in the facts stated herein read with the provisions of Section 454 of the Companies Act.

The relevant provisions of Section 454 is as follows:

(1) Where the Court has made a winding up order or appointed the Official Liquidator as provisional liquidator, unless the Court in its discretion otherwise orders, there shall be made out and submitted to the Official Liquidator a statement as to the affairs of the company in the prescribed form, verified by an davit and containing the following particulars, namely:

... ... ... ...

(2) The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the Official Liquidator, subject to the direction of the Court, may require to submit and verify the statement, that is to say, persons

(a) who are or have been officers of the company;

(b) who have taken part in the formation of the company at any time within one year before the relevant date;

(c) who are in the employment of the company or have been in the employment of the company within the said year and are, in the opinion of the Official Liquidator, capable of giving the information required;

(d) who are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates.

(3) The statement shall be submitted within twenty-one days from the relevant date, or within such extended time not exceeding three months from that date as the Official Liquidator or the Court may, for a special reason, appoint.

(5) If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred rupees for every day during which the default continues, or with both.

(5A) The Court by which the winding up order is made or the provisional liquidator is appointed, may take cognizance of an offence under Sub-section (5) upon receiving a complaint of facts constituting such an offence and trying the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure, 1898 (5 of 1898), for the trial of summons cases by magistrates.

(8) In this section, the expression "the relevant date" means, in a case where a provisional liquidator is appointed, the date of his appointment and in a case where no such appointment is made, the date of the winding up order.

Mr. Bikash Sen, learned Counsel appearing on behalf of Pulin Behari Sarkar, a director of the company, urged that no statement of affairs can be called for from a director unless and until a prior order or direction is obtained by the Official Liquidator from the Court. In order to strengthen this construction, Mr. Sen relied upon the works "subject to the directions of the Court" which, according to him, governs all the provisions mentioned in that clause and also the sub-clause thereto.

Clause 1 of the section provides for submission of a statement of affairs unless the Court in its discretion otherwise orders. Clause 1, however, does not state who shall submit the statement of affairs.

The opening paragraph of Clause 2 the words "by such of the persons hereinafter in this sub-section mentioned" can be divided into three parts. The first part deals with persons who are at the relevant date the directors. The second part deals with the person who is on that date the manager, secretary or other chief officer of the company and the third part deals with persons mentioned in the various Sub-clauses (a) to (d) of the said clause. In the first part, again, of Clause 2 it is stated that the statement shall be submitted and verified by one or more of the persons. Therefore, it does not specify the person or persons who amongst the several directors will submit and verify the statement of affairs. Likewise, in the second part it does not specify as to who amongst the several officers mentioned therein shall submit and verify the statement of affairs. Likewise, in the third part, dealing with persons mentioned in Sub-clauses (a) to (d) there is no mention as to who amongst them shall submit and verify the statement of affairs.

Clause 2, however, does not end with the words "by such of the persons hereinafter in this sub-section mentioned" but proceeds to say "as the Official Liquidator, subject to the direction of the Court may require to submit and verify the statement". This part may be considered without the words "subject to the direction of the Court" in the first instance. If it is so done, the question for consideration is whether the words "as the Official Liquidator may require to submit and verify the statement" qualified only the persons mentioned in the third, that is to say, Sub-clauses (a) to (d) or qualifies the directors mentioned in the first part and the officers mentioned in the second part. There cannot be any dispute that it qualifies the third part and there was none before me. Hence in reality the first part and second part require consideration. If these words are not read with the first part and second part, the question as to who amongst the two classes of persons or who amongst the same class of persons will submit the statement of affairs is left at large and there is no indication therein as to how this problem has to be resolved. This can, however, be resolved if the words "as the Official Liquidator may require to submit and verify the statement" qualify both of them. Hence, in my opinion, these words also qualify the first and second part for, thereby the persons who shall submit and verify the statement of affairs can be specified.

It is now necessary to consider what is the effect of the words "subject to the direction of the Court". The words "subject to the direction of the Court" clearly suggest that the requisition made by the Official Liquidator is not controlled or unfettered. It is subject to the control of the Court. The Court can vary, modify or even do away with or cancel the requisition made by the Official Liquidator. Hence, the words "subject to the direction of the Court" cannot, in my opinion, mean that the Official Liquidator cannot make any requisition without a prior direction of the Court but on the other hand mean that the direction of the Court is made after the request of the Official Liquidator. In this connection, reference may be made to the case of In Re: Kalyanasundara Gounder and Another, where it was held that the words "subject to the direction of the Court" did not mean that a prior direction should be obtained by the Official Liquidator from the Court but that if any person is called upon by the Official Liquidator to submit the statement of affairs, he can seek directions of the Court. In my opinion, the view taken by the Madras High Court is in consonance with reason.

It seems to me that the words "subject to the direction of the Court" does not contemplate a direction by the Court prior to a requisition by the Official Liquidator. It is, however, clear to me that even if the words "subject to the direction of the Court" are capable of a wider interpretation so as to include a power in the Court to give direction before the Official Liquidator makes the requisition, then the words "subject to the direction of the Court" are not in my opinion directed against that situation only but extends to direction made after the requisition of the Official Liquidator.

Therefore, the contention advanced on behalf of the Respondent No. 3 must be rejected.

Mr. Bikash Sen, learned Counsel appearing on behalf of the Respondent No. 3, Pulin Behari Sarkar, further submitted that neither the Court nor the Official Liquidator had the power to extend the time beyond three months from the relevant date, it being "in a case where a provisional liquidator is appointed, the date of his appointment and in case where no such appointment is made, the date of the winding up order". Hence, the Official Liquidator or the Court cannot direct his client to file a statement of affairs, for the three months mentioned in Clause 3 has long expired before the present application was made and the further suggestion was that his client was thereby absolved from filing the statement of affairs.

Clause 3 of Section 177A of the Companies Act, 1913, provided that the statement shall be submitted within twentyone days from the relevant date or within such extended time as the Official Liquidator or the Court may for special reasons appoint.

Therefore, in an ordinary case the point of time from where the default was counted was the day immediately following the expiry of twentyone days and in case where the persons concerned made an application or applications successfully to the Court, the point of time for counting the default was the day immediately following the day on which the extended date expired.

Clause 5 of Section 177A of the Companies Act, 1913, provided inter-alia for punishment of the delinquent director, officer or person concerned if they or any of them without reasonable excuse knowingly and wilfully made default in filing the statement of affairs, by imposition of a fine of Rs. 100 for every day during which the default continues.

Hence, after the default the director, officer or person concerned went out of the hands of the winding up Court or the Official Liquidator and immediately exposed himself to criminal prosecution. Section 278 of the Companies Act, 1878, made provision for the forum of the criminal proceedings which was the Presidency Magistrate of Calcutta in case of the High Court of Judicature at Fort William. Hence, if the delinquent director, officer or person concerned was unable to explain away wholly his default before the Presidency Magistrate he was liable to be punished by the imposition of fine which would go on mounting as the number of days of default increased. He could, however, put an end to this mounting fine by filing a statement of affairs with the Official Liquidator.

It is now necessary to turn to Section 454 of the Companies Act, 1956, before the amendment, that is to say, before the incorporation of Clause 5(A).

Clause 8 of the section defined the expression "the relevant date" in the same words as in Section 177A of the Indian Companies Act, 1913. Clause 3 of the Companies Act, 1956, provides in its first part or clause as in the old Act that "the statement shall be submitted within twentyone days from the relevant date". Clause 3, however, in the place and stead of the second part or clause of the old Act, namely, "or within such extended time as the Official Liquidator or the Court may for special reasons appoint" provide "or such time as the Official Liquidator or the Court within such extended time not exceeding three months from the date as the Official Liquidator or the Court may for special reasons appoint".

Therefore, the winding up Court and the Official Liquidator were deprived of the power to extend time beyond three months even on the applications of the delinquent director, officer or person.

Hence, the power of extension has been specifically curtailed and limited to three months and consequently neither the Official Liquidator nor the Court can extend the date for the submission of statement of affairs beyond three months.

Therefore, the default which has to be considered in relation to Clause 5 occurred ordinarily on the expiry of twentyone days as in the earlier Act, but in case of successful application or applications for extension of time it could not and cannot exceed three months at the most.

Clause 5 of the 1956 Act was again in the same words as in Clause 5 of the old Act except that the words "knowingly and willfully" were omitted. So, if any person without reasonable excuse make default in filing the statement of affairs, he was punishable by imposition of a fine of Rs. 100 for every day during which the default continues. Hence, after the expiry of twentyone days or in case or cases of extension of time the arena was shifted from the High Court to the criminal Court as in the old Act of 1913 by virtue of Sections 621, Clauses (2), 622 and possibly 623 of the Companies Act, 1956. Therefore, if the delinquent director, officer or person showed or could show reasonable excuse he could be absolved from filing the statement of affairs altogether or if he should or could show reasonable excuse for a part of the delay he was punished or could be punished by fine for the period of default. In case he was fined, the fine continued till the default which implies that the default could be put an end to or terminated by filing the statement of affairs at the peril of mounting or increasing fine. Therefore, in such circumstances, the Official Liquidator was bound to accept the statement of affairs upon the basis of the order made in the criminal proceedings as under the old Act of 1913.

It is now necessary to consider Section 454 as it is now after the amendments. The provision as to the filing of the statement of affairs within 21 days and in case of application not beyond a period of three months from the relevant date remains unaltered.

The imposition of fine was thought insufficient to induce the delinquent director or officer or the person concerned to file the statement of affairs or punish him for his default. Hence, our Parliament amended Clause 5 by making provisions for imprisonment extending to two years in addition to fine or both.

The working of the Clause 5 which entails a prosecution in a different Court than the winding up Court was capable of or could occasion considerable delay thereby defeating the object of expeditious winding up of the company notwithstanding the curtailment of the Court''s power to extend time.

Hence, Clause 5(A) was introduced by amendment in Section 454 whereby the winding up Court has been given power to take cognizance of an offence under Sub-section 5 and to try the same in order to expedite the winding up of the company.

Therefore, when the delinquent director is prosecuted, tried and punished with the fine the delinquent person can file the statement of affairs with the Official Liquidator and thereby stop the running of the fine by bringing to an end his default. Hence, there is no provision in this amended section again for extending the time after the commencement of the default and before the trial ends.

This construction of Section 454 will also be in accord in my opinion with the intent of the Parliament and be a sufficient pressure and/or inducement to the delinquent person to file the statement of affairs so that the company may be wound up as expeditiously as possible. On the other hand, if this construction is rejected, this will empower the Court to extend the time after the expiry of 21 days or in case of extension or extensions after the expiry of three months though the power has been expressly and unequivocally taken away from the Court and even though the prosecution is contemplated after the default. This, in my opinion, will be both against the scheme of Section 454 as it is and in direct contravention of the provisions made in the section.

Therefore, on a consideration of Clauses 3 and 5 the position in my opinion is this that the person concerned may as of right file his statement of affairs within 21 days, further can file a statement of affairs within three months without being guilty provided he has obtained necessary orders for extension or extension of time from the Liquidator or the Court and further upon the expiry of three months he exposes himself to a criminal prosecution under Clause 5(A).

Hence, in my opinion, it follows from the above conclusions that the Official Liquidator after the expiry of twenty-one days, if no extension is given by him or the Court or in case such extension or extensions are given, after the expiry of three months, should promptly file a complaint against the delinquent person and accept the statement of affairs from the delinquent director or officer, or person if he is punished in that criminal proceeding with fine or with fine and imprisonment and not otherwise. Hence, in my opinion, the contention of Mr. Bikash Sen advanced on behalf of Respondent No. 3 is correct with a very substantial difference or qualification.

In this case, however, I adhere to the old practice in view of the order made by his Lordship Mr. Justice Mitra on May 11, 1964, in this application directing Gostho Behari Sarkar to file a statement of affairs on the footing of the practice under the Indian Companies Act, 1913 and further because the question whether such extension of time beyond three months by the winding up Court under its ordinary power is without jurisdiction was not raised and discussed before me from the point of view set out hereinafter.

This aspect of the matter as to jurisdiction, however, agitated my mind considerably even after judgment was delivered for one way of looking at the problem after the introduction of Clause 5(A) by way of amendment is that when the winding up Court now has the power to allow the delinquent person to put an end to the default by allowing him to file a statement of affairs after the trial, it is immaterial whether it is done at the end of the trial or before the complaint or during the progress of the trial.

I am ultimately inclined to hold the view that such orders of extension directly or indirectly by the winding up Court after the default is without jurisdiction for any other construction would negative the significant departure from the old Act, the change in Clause 3 and the introduction of changes in Clauses 5 and 5(A) whereby the Court is given special criminal jurisdiction to try the delinquent person in the place of Magistrates.

In any event, in my opinion, it would not be proper for the Court to extend the time directly or indirectly after the expiry of three months having regard to the changes made in the Companies Act, 1956. Hence, in future I propose not to make such orders of extension beyond three months directly or indirectly at the instance of the Official Liquidator or the person concerned any more unless I am induced to change my mind after further arguments on the point.

Mr. Bikash Sen, learned Advocate, further, submitted that the provisions of Sub-section 5(A) cannot be complied with for the words "may take cognizance" are followed by the two phrases "upon receiving a complaint of facts constituting such an offence" and "trying the offence". This part of the sub-section requires the fulfilment of two conditions before the Court can take cognizance. The words "take cognizance upon receiving a complaint" is clearly understandable, but it is difficult to appreciate how the Court can take cognizance upon "trying the offences" and more so, upon "and trying the offence", or in other words, the fulfilment of these two conditions. The words "take cognizance" upon "trying the offence" are, accordingly, in my opinion meaningless. Hence, if this construction is accepted, it is clear that the sub-section cannot be given effect to.

There is another way of looking at this sub-section. The words "upon a complaint..." only refers to the first part and does not refer to the second part commencing with the words "and trying". In other words, the word ''and'' deals with two independent matters. Even then the word ''trying'' does not fit in with a meaning which can be enforced.

Hence, in my opinion, the contention advanced on behalf of Pulin is well-founded on a literal construction of the section. This, however, does not end the matter.

Mr. Banerjee, in order to overcome these contentions, made on behalf of the Respondent No. 3 submitted that the Court is competent to correct a printing mistake of the legislature for it is evident that the word was wrongly printed as ''trying''. The original copy of the typed bill was produced before me. The Act as published by the Government of India was also produced before me. In both the word ''trying'' occurs and not the word ''try''. Hence, it cannot be a case of a printer''s mistake on the materials before me.

Mr. Banerjee, further, submitted that in order to give a commonsense and sensible meaning to this clause, the Court is competent to add words or take away words and consequently change the tense of a verb. The addition, alteration or modifications of the language of the legislature cannot be an inroad into the province of the legislature but really giving effect to the obvious intention of the legislature. Moreover, the Court should try to give such a construction as it makes the section workable and not to defeat it if this is possible. In this connection he cited English cases in which a word was added or substituted to give a meaning to this section. He was, however, unable to cite cases which change the tense of a verb used by the legislature.

It is well established that the Court cannot legislate for that would be making inroad into the sphere of legislation which is reserved for the legislatures. It is equally well established that the Court which has to give effect to the legislation, has the power to construe the section and say what it means. In British India General Insurance Co. Ltd. Vs. Captain Itbar Singh and Others, the Supreme Court observed that where the section as it stands is meaningless or of doubtful meaning the Court can add a word to the section. In the case of Ramaswamy Nadar v. State of Madras (1958) S.C.J. 343 the Supreme Court again observed that

If, in construing the section, the Court has to supply some words in order to make the meaning of the statute clear, it will naturally prefer the latter construction which is more in consonance with reason and justice. It was also argued on behalf of the Appellant that this being a penal statute, the words of the statute should be very strictly construed, but even so, the necessity for supplying certain additional words is there in either view of the matter.

In my opinion, if a word can be added or subtracted, there cannot be any good reason why the tense of a verb cannot be altered where it is evident that the tense does not fit in with the whole context and the matters directed against. In this view of the matter in my opinion the word ''trying'' should be read as ''try''. If it is so read, there is no difficulty in giving effect to the section. In this view of the matter the contention advanced on behalf of the Respondent Pulin Behari Sarkar is rejected.

Mr. Sen, further, submitted that when Clause 5(A) is capable of two constructions, the Court should avoid one which entails a penalty. In this connection he cited the case of Remmington v. Larchin. In my opinion, in this case the section is not capable of two meanings for in one case it is not understandable at all and in the other case it conveys no definite and clear meaning. Hence, in my opinion, there is no room for the application of the above principle in this case.

There are other incidental submissions and discussions on Section 454 but in the view that I have taken of the facts it is not necessary to give expression of my opinion on them in this application.

It is now necessary to turn to the contentions on the merits. Mr. Sen, learned Advocate appearing for the Respondent Pulin Beha Sarkar, further submitted that on the facts no order should be made against his client for prosecution under Clause 5(a) for Pulin Behari Sarkar was never in charge of management or the books of account. Gostho Behari Sarkar does not say anything to the contrary. In the affidavit-in-reply the representative of the Official Liquidator stated that the books were with Gostho Behari Sarkar. Therefore, it is clear that Pulin Behari Sarkar could not make out a statement, the books and records not being in his possession.

Mr. Banerjee, in order to get rid of this contention, further submitted that in law all the directors are in possession of the books and records. Therefore, it would not be any excuse to say that he had not been in management or charge of books or records. In my opinion, it is not sufficient for the Official Liquidator to satisfy the Court that in law he may be deemed to be in possession of the books of account and records if and when the person in default satisfies the Court that it is not physically possible to file the statement of affairs by reason of the want of books and records of the company owing to no act or omission of his.

Mr. Banerjee further contended that the statement made by the representative of the Official Liquidator in the affidavit-in-reply should be literally construed for the same deponent when referring to Laxmi Kanta Sarkar made the same averment. Hence, this statement cannot be taken literally and must be given a wide meaning indicating that these are the persons amongst others who were in possession of the books of account and records. In my opinion, such wide construction in violence of the word ''used'' cannot be made. The two statements of the representative of the Official Liquidator may mean taking it at its best that both of these persons namely Gostho Behari Sarkar and Laxmi Kanta Sarkar were in possession of the books of account and records. Hence on the materials before me contained in the affidavits I hold that Pulin Behari Sarkar has reasonable excuse for not complying with the requirements of the section and accordingly no steps can be taken under the section against him.

Mr. Das who appeared for the Respondent, Gostho Behari Sarkar, ultimately stated that his client has made out a statement of affairs in accordance with the provisions of the Act and is prepared to file it in Court.

In is clear that the time to file the statement of affairs under the section has expired long ago. It is again clear that the time to file the statement of affairs under the order of the Court dated May 11, 1964, has again long expired. Therefore Gostho Behari Sarkar was in default and in contempt all this time, Gostho Behari Sarkar is further liable to be prosecuted under this section to fine and imprisonment as the case may be. Be that as it may, as Gostho Behari Sarkar is now willing to file the statement of affairs, I will allow Gostho Behari Sarkar to file the statement of affairs within 7 days upon condition that the Official Liquidator will accept it if he finds it satisfactory within 15 days from date in writing to Gostho Behari Sarkar and/or his solicitor and in case the statement of affairs which may be filed is found to be inadequate by the Official Liquidator, he will intimate the same to Gostho Behari Sarkar and his solicitor in writing within 15 days. In default of the filing of the statement of affairs within 15 days or in case it is found to be unsatisfactory by the Official Liquidator, the Official Liquidator will be entitled to take proceedings for contempt and prosecution against Gostho Behari Sarkar.

It is clear from the affidavits that the books and records are with Gostho Behari Sarkar. They have not been handed over in spite of requests and orders. I hereby direct that Gostho Behari Sarkar should produce the books and records and assets of the company within 15 days from date and if he fails to do so, the Official Liquidator will take such steps as he may be advised in the matter against Gostho Behari Sarkar. In view of the delay already caused in this matter, the Official Liquidator, if so advised, must take steps within 6 weeks from date. There would be an order upon Krishna Gopal Sarkar to file a statement of affairs if no statement of affairs is filed by Gostho and/or the same is rejected by the Official Liquidator and if the statement of affairs of Gostho Behari Sarkar is accepted, then he will be at liberty to concur in the same within 15 days from date. The orders made as against Gostho Behari Sarkar and Krishna Gopal Sarkar do not mean and should not be taken to mean that I have refused an order in terms of prayers (a) and (b) of the summons. I presume the Official Liquidator''s right to file a complain against them. I have only given another opportunity to them. The date for filing of the statement u/s 455 is extended by one month from the date of filing of the statement of affairs acceptable to the Official Liquidator by either Gostho or Krishna Gopal Sarkar. The cost will be taxed as of hearing for two days. The cost will be paid by Gostho Behari Sarkar. If there is any shortfall in this cost recoverable from Gostho and the costs of the Official Liquidator as between attorney and client, it will be recoverable from Krishna Gopal Sarkar. Certified for counsel. The Official Liquidator is at liberty to retain his costs out of the assets in his hands. The parties and the Official Liquidator will act on a signed copy of the minutes.