Metlex Ceramic Ltd vs Jaswant Kumar Garg
2010 Latest Caselaw 5475 Del

24.
%     02.12.2010

      Present:     Mr. Sudhir Makkar for Mrs. Jamuna Datwani.
                   Ms. Purnima Sethi for the Official Liquidator.

+     CRL.O. (CO.) No. 4/2006 in CP No. 263/1997
*

1. The matter is fixed for issue of notice. Mr. Sudhir Makkar, Advocate has appeared for Mrs. Jamuna Datwani, who is also present in person along with her son Mr. Anand Datwani. He submits that Mrs. Jamuna Datwani is an old lady, 73 years of age, who was/is only a house wife and has no knowledge about the affairs of Metlex Ceramics Limited. He has relied upon two judgments of this Court in Securities and Finance Private Limited (in liquidation), 1974 VOL. X DLT 181 and Devindar Kishore Mehra versus Official Liquidator and Others, 16 DLT (1979) 150. My attention is drawn to paragraph 9 of the judgment in the case of Devindar Kishore Mehra (supra), which reads as under:-

"9. It has been urged that even past officers may be able to give valuable information and Section 454(2)(a) in terms talks of past officers. So the date of resignation of the appellant is immaterial. There is some force in this contention but in the circumstances of this case we do not see how any useful information or rather any information at all can be furnished by the appellant. As has been held by D.K. Kapur, J. Official Liquidator of M/s R.S. Motors (P) Ltd. (in liquidation) v. Shri Jagjit Singh Sawhney and another; I.L.R. 1974 (1) Delhi 243 if the books of the company are not available to a director who is required to file a statement under Section 454, then it will be a reasonable excuse for him in not submitting the statement of affairs of the company ordered to be wound up in a prosecution launched against him for failure to file the statement of affairs. The appellant, as we have already noticed, has been held not to be in a position to have access to the books of the company ever since he was ousted from the management. In these circumstances calling upon him to file the statement of affairs cannot be justified. Indeed, it cannot be justified for any of the persons unless a clear-cut finding is given that any one of the persons concerned is in a position to or capable of filing the statement of affairs. Such an enquiry is an imperative prerequisite to giving directions under Section 454 on a motion by the Official Liquidator. We cannot agree with the contention that pleading reasonable excuse is available at the stage of prosecution only. Putting a person in jeopardy of that type without an earlier investigation when it is so required to be made is not called for."

(emphasis supplied)

2. The judgment in the case of Securities and Finance Private Limited (in liquidation) (supra) is a Full Bench decision. In the said decision, the Full Bench had examined the question whether during pendency of a complaint under Section 464(5) of the Companies Act, 1956 (Act, for short), burden of proof to show reasonable excuse for not filing statement of affairs of the company within prescribed time lies on the prosecution or on the accused. This is clear from paragraph 2 of the judgment and from the last portion of paragraph 8 of the judgment, which read as under:-

"2. ............ Sub-section (5) and (5A) on which the main arguments were raised read as under:

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

Sub- section (5-A) 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, for the trial of summons cases by magistrates.

3. ..............

4. ..............

5. ...............

6. ...............

7. ..............

8. .........The present is a case where the finding of default being "without reasonable excuse" would have to be given by the court before holding a person guilty; the real question being as to on whom does the onus lie?"

3. The Full Bench examined the view taken by a single Judge of this Court that the prosecution is only to establish the factum that the statement of affairs of a company was not filed, for establishing an offence under Section 454(5) of the Act and nothing more. This view of the single Judge of this Court was not accepted by the Full Bench in view of the reasoning given in paragraph 9 of the judgment, which reads as under:-

"9. It was not suggested nor indeed could it be that there is any statutory presumption under the Act, not has the Act in so many words placed burden of proof on the accused to show that he had reasonable excuse to make a default. The language of Section 454(5) also does not make a mere default an offence.

Now when Sub-section (5-A) requires the Court to take cognizance of an offence under Sub-section (5) it is obvious that the Court will have to consider whether the various ingredients of offence under Sub-section (5) of Section 454 of the Act have been made out or not. The Court cannot come to a finding of guilt unless comes to the conclusion that a person has made the default without a reasonable excuse.

Rangarajan J. however has expressed his view that the mischief sought to be averted is that the persons in charge of the company's affairs do not fail to furnish the needed information pertaining to the company, affairs in the manner set out above and prescribed by the concerned form and by the Rules and that it could not be lightly assumed in the whole context that when the object of punishing he defaulting director under Sub-section (5-A) is to make him submit the statement of affairs an additional burden was intended to be placed on the Official Liquidator to prove that the persons concerned had no reasonable excuse for not submitting the statement of affairs and did not submit the same as required. He has expressed the view that the very object of the section would be frustrated and the provision would become dead letter if the Official Liquidator is required to prove absence of reasonable excuse of the default on the part of the defaulting director. No doubt the object of Section 454(1) of the Act requiring the statement of affairs to be submitted by the director is laudable one and no count the legislature has also provided that if any default is made by the Director he would be punishable, yet the legislature has not in its wisdom chosen to go to the extent of making a mere default punishable. It has advisedly chosen to specify and qualify that the making of default should be without reasonable excuse. We think that Rangarajan, J. was presumably influenced by the fact that there are provisions which permit the director concerned ask for an extension of time if he has not been able to submit the statement of affairs within the prescribed time and, therefore, opined that if the default is made burden should be held to be on him to show the reasons and circumstances which prevented him from complying with the requirement. But we feel that to read the provision of Sub-section (5) in such a manner would really be to redraft that sub-section so as to lay down that the words "without reasonable excuse" instead of qualifying the word "make default" as was even accepted by Rangarajan J.

would have to be read as an exception to the main provision. If the legislature desired to provide that a mere default by the director would be an offence by itself and wanted to provide an exception of reasonable excuse to be proved by the director, if he wanted to absolve himself, nothing would have been easier than by providing a proviso to the main part of the section and in that case 454(5) should have read as :

"if any person makes a default in complying with any of the requirements of this section he shall be punishable :

Provided that if there was a reasonable excuse for making default in complying with any of the requirements of this section no offence would be deemed to have been committed."

4. The Full Bench went on to examine the manner in which onus is to be discharged by the prosecution. The said question had arisen as it was urged on behalf of the prosecution that it would be difficult for the prosecution to explain and prove that there was no reasonable excuse on the part of the accused and placing onus on the prosecution would lead to unsurpassable difficulties. In paragraph 10 of the judgment, the Full Bench has clarified that the initial onus on the prosecution can be established by the Official Liquidator showing that notice was issued to the accused to file statement of affairs and the prescribed time has lapsed, the accused has not moved any application for extension of time and if the same was moved, the same has been considered and decided and whether the accused had reasonable opportunity to examine the necessary books of accounts and they were made available for inspection. For the sake of convenience, relevant portion of paragraph 10 of the judgment is reproduced below:-

"10. Had the sub-section been framed as above, it could legitimately have been argued that all that the Official Liquidator has to prove is that the default has be committed in complying with the requirements of Section 454, and thereafter if director pleads any exception to bring his case within the proviso the burden to prove that would be on him. But the phraseology of the Sub-section (5), in our opinion, however, does not support this contention which was accepted by Rangarajan J.

One of the reasons which seems to have weighed with Rangarajan J. to take this view appears to be the apparent difficulty which may be faced by the Official Liquidator if he was called upon to show the absence of reasonable excuse. It appears to us that the very provisions which were referred to by the learned Judge requiring the notice to be sent to concerned director and a provision enabling the director to seek extension from the Official Liquidator or the Court would show that the burden, if placed on the Official Liquidator is not onerous or insuperable one. It appears to us that the Official Liquidator need only prove that notice was sent to the concerned director to submit a statement of affairs, that 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 are facts which are conveniently available to the Official Liquidator and if he shows these facts prima facie he could 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. Support for the contention that the burden of proving that there was reasonable excuse for making a default should be on the accused is drawn by making reference to Section 106 of the Evidence Act which states that where any fact is especially within the knowledge of any person, the burden of proving that fact is upon him and suggesting that it may not be practicable for the Official Liquidator to prove anything and further in terms of illustration (a) to Section 106 of Evidence Act the non-filing of the statement of affairs within the time prescribed and the absence of application by accused within the prescribed time shows that he had committed default and that it was for the accused in these circumstances to show that the default by him was for reasonable excuse. We do not see how illustration (a) is applicable to the facts of the present case. Late filing or non-filing of the statement of affairs only shows that a default has been made. By itself it is consistent equally with there being a reasonable excuse as well as there being no reasonable excuse at all. This by itself has no relevancy to the question of onus. The Supreme Court in Shambu Nath Mehra v. The State of Ajmer, 1956 SCR 199; cautioned against invoking Section 106 of Evidence Act so as to place the burden of proof on the accused and pointed out that Section 106 is an exception to Section 101 which lays down that whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of Acts which he asserts must prove that those facts exist and referred to illustration (a) which says that if A desires a Court to give judgment that B shall be punished for a crime which A says has committed. A must prove that B has committed the crime and went on to observe :

"That S. 106 of the Evidence Act does not abrogate the well established rule of criminal law that except in very exceptional classes of cases the burden that lies on the prosecution to prove its case never shifts and Section 106 is not intended to relieve the prosecution of that burden. On the contrary, it seeks to meet certain exceptional cases where it is impossible, or disproportionately difficult, for the prosecution to establish facts which are especially within the knowledge of the accused and which can be proved by him without difficulty or inconvenience. But when knowledge of such facts is equally available to the prosecution if it chooses to exercise due diligence, they cannot be said to be especially within the knowledge of the accused and the section cannot apply."

Another reason mentioned by Rangarajan J. to place burden of proof on the accused is by referring to Section 5 of the Act which defined the expression "officer who is in default" to mean any officer of the company who is knowingly guilty of the default or non-compliance, failure, refusal or contravention, against the expression used in Section 454(5) as "any person making a default" to show that it gives clue to the intention of the legislature that in the present context it is unnecessary to prove the quality mind of that person on whom a duty has be cast to submit a statement and that it could not be contended that the onus of proving non-existence of the reasonable excuse is upon the prosecution, because of the obvious difficulty in requiring the Official Liquidator to prove a negative, namely the absence of reasonable excuse. With respect we are unable to agree. Section 5 of the Act is a definition clause so as to relieve the legislature from every time putting the word knowingly guilty of default, non- compliance, when the expression "officer who is in default" is used in the various provisions of the Act. We cannot loose sight of the fact that Section 454(5) uses the words "without reasonable excuse makes the default". When the legislature has itself qualified the default by providing that it should be without reasonable excuse it was obviously unnecessary for it to use the word knowingly guilty of default in this sub-section, because the qualification of default by "without reasonable excuse" itself shows that a mere making of default is not an offence. We also cannot agree that merely because some belief of the other party has to be proved, it is permissible to assume in criminal prosecution that the burden is on the accused. In this connection reference may be made to Section 123 (4) of the Representation of the Peoples Act, 1951, which makes the publication by a candidate of any statement of fact which is false or which he either believes to be false or does not believe to be true in relation to the personal character or conduct of any candidate as one of the corrupt practices, on proof of which the election of the returned candidate can be set aside. Proof of corrupt practice has to be given as in a criminal trial. It could have be, contended that as the requirement is to prove that the returned candidate did not believe the statement to be true or which he believed it to be false, the onus should be on his because those facts would be within his especial knowledge, and the election petitioner should not be asked to prove the negative i.e. the absence of belief of the returned candidate. The Supreme Court, however, in V. K. Gangi Reddy v. M. C. Anjanega Reddy and other, 22 ELR 26 AT 267; did not accept this approach and observed :

"Burden of proof has two distinct meanings viz. (i) the burden of proof as a matter of law and pleading, and (ii) the burden of proof as a matter of adducing evidence. Section 101 deals with the former and Section 102 with the latter. The first remains constant and second shifts. In the present case, the burden of proof, in the first sense, certainly lies on the first respondent, but he has examined himself and has specifically stated in the evidence that he has neither committed the murder not has he been guilty of any violent acts in his political career. He also placed before the Court the circumstances, namely, the situation created by the murder or Narayana swamy and the possible impact of that murder on the poll which was scheduled to take place in a few days thereafter indicating thereby a clear motive on the part of the appellant to make false allegations against him. A Court of first instance or an appellate Court is entitled to accept his evidence. If so, the onus shifts on to the appellant to prove those circumstances, if any, to dislodge the assertions of the first respondent. The appellant has failed to put before the Court any facts to establish either that the first respondent did in fact commit the murder or any other acts of violence the past or to give any other circumstances which made him bona fide believe that he was so guilty. In the circumstances, the Court is entitled to say that the burden of proving the necessary acts had been discharged by the first respondent."

In Kumara Nand v. Brijmohan Lal Sharma, AIR 1967 S C 808; it was held that the burden of proof is on the election petitioner though it was held to be*** and the Court observed :

"The burden of proving that the candidate publishing the statement believed it to be false or did not believe it to be true though on the complaining candidate is very light and would be discharged by the complaining candidate swearing to that effect. Thereafter it would be for the candidate publishing the statement to prove otherwise."

5. In view of the aforesaid position, it is not possible to accept the contention of Mr. Sudhir Makkar, Advocate that the prosecution has to establish and show at the time of issue of notice that there is evidence to show that the accused willfully or deliberately did not file statement of affairs. At the stage of notice only prima facie view is required to be taken and it has to be examined in the light of parameters mentioned in paragraph 10 of the Full Bench decision, whether the prosecution has made out a case and whether prosecution should be permitted to lead evidence to discharge the initial onus. The prosecution has to file necessary documents and make averments to show and establish that the initial onus on them can be discharged. Nothing more and beyond that is required to be established by the prosecution. Similar view has been taken by the Division Bench in Devindar Kishore Mehra (supra). In the said case, the Director had resigned and he had been ousted and not allowed to attend the affairs of the company. In these circumstances, it was held that direction under Section 454(2) and (5) of the Act should not have been issued.

6. Metlex Ceramics Limited was ordered to be wound up by this Court on 21st July, 2004 pursuant to opinion received from the BIFR. Metlex Ceramics Limited was a public limited company and a listed company in which about 49% shares were held by the general public. The subscribed share capital was Rs.389 lacs and the company had about 10,000 shareholders. The company had imported machinery from Italy of value of more than Rs.2 crores (See CA No. 176/1999 filed by Mr. Jamna Datwani on behalf of the Company). The company had also purchased equipment and machinery from India. As per the balance sheet for the year ending 31st March, 1994, the depreciated/ written down value of the machinery was Rs.644.41 lacs. As per the minutes of hearing dated 2nd April, 1996 before BIFR, there was consensus among all participants, i.e., management of Metlex Ceramics Limited, Central Bank of India, IDBI and Government of Haryana, except Syndicate Bank that the valuation report recommending reserve price of Rs.560 lacs, if the assets were to be retained at the existing location, or alternatively Rs.426 lacs, in case the assets were dismantled and relocated at different places, should be accepted. The said plant and equipment has simply vanished and is not traceable. We do not know who had taken away the plant or sold it. Mrs. Jamna Datwani claims ignorance. Papers on record indicate that the machinery was installed in premises bearing plot No. 4, Sector 18, Maruti Udyog Industrial Area, Gurgaon. This land belongs to CNA Exports Private Limited, a family company of Datwani's. On an application filed by CNA Exports Private Limited, which was signed by Mr. Anand Datwani, possession of the said plot was handed over to the said company.

7. As per the prosecution, in the present case statement of affairs has not been filed even by a single Director/Officer. Statement of Mrs. Jamna Datwani has been recorded under Rule 130 of the Company (Court) Rules, 1959. In the statement, Mrs. Jamna Datwani has stated that her husband suffered a paralytic stroke in May, 2001 and was bed ridden and he expired in July, 2004. During the period 2001-2004, the affairs of the company were looked after by Managers, Chartered Accountants, etc. and by the other Directors, but she does not know them. She has stated that she has signed documents of the company and other companies but she never read the documents and signed whatever her husband asked her to do. She could not understand the details in the balance sheets. This statement was recorded on 14th May, 2009 after she was served with great difficulty. This is her defence, which has to be established and examined in trial.

8. Prima facie, I am inclined to proceed further with the matter despite of the age of Mrs. Jamna Datwani. However, with a view to give her one further opportunity, I adjourn the matter to 27 th January, 2011.

SANJIV KHANNA, J.

DECEMBER 02, 2010 VKR