Karnataka High Court
Official Liquidator Of M/S Titan Food & vs Sri O K Shaheed on 29 November, 2023
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CA No. 2111 of 2013
IN
COP NO.2 of 2006
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF NOVEMBER, 2023
BEFORE
THE HON'BLE MR JUSTICE C.M. POONACHA
COMPANY APPLICATION NO. 2111 OF 2013
IN
COMPANY PETITION NO.2 OF 2006
BETWEEN:
1. OFFICIAL LIQUIDATOR OF
M/S TITAN FOOD & FASHIONS LIMITED (IN LIQN)
ATTACHED TO HIGH COURT OF KARNATAKA
CORPORATE BHAVAN
NO.26-27, RAHEJA TOWERS
12TH FLOOR
M G ROAD, BANGALORE-1
...APPLICANT
(BY SRI SHRISHAIL NAVALGUND, ADVOCATE FOR OL)
AND:
1. SRI O K SHAHEED
79, ITI LAYOUT, BENSON TOWN
Digitally
signed by BANGALORE-560046
BHARATHI S
Location:
HIGH 2. SRI K AHAMEED AMEEN
COURT OF P.O.BOX 1837, AL AROO 13A
KARNATAKA
STREET, UNITED ARAB EMIRATES
3. SRI P PAKKAR KOYA
P.B.NO.4266, DEIRA DUBAI
UNITED ARAB EMIRATES
...RESPONDENTS
(BY SRI ZULFIKIR KUMAR SHAFI &
SRI S LAKSHMINARAYAN REDDY,ADVOCATES)
THIS COMPANY APPLICATION IS FILED UNDER SECTION 543
[1] OF THE COMPANIES ACT, 1956, R/W SECTION 458A & RULE 260
OF THE COMPANIES [COURT] RULES, 1959, PRAYING TO PERMIT
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CA No. 2111 of 2013
IN
COP NO.2 of 2006
THE APPLICANT/ THE OFFICIAL LIQUIDATOR TO FILE THE
ADDITIONAL POINTS OF CLAIM IF FOUND AFTER THOROUGH
VERIFICATION OF ENTIRE BOOKS AND RECORDS OF THE COMPANY
IN LIQUIDATION AND AFTER RE-INVESTIGATION TO BE CONDUCTED
BY CHARTERED ACCOUNTANT AND ETC.
THIS APPLICATION, COMING ON FOR ARGUMENTS, THIS DAY,
THE COURT MADE THE FOLLOWING:
ORDER
1. The present application is filed under Section 543(1) of the
Companies Act (hereinafter referred to as the 'Act') r/w Section
458A and Rule 260 of the Companies (Court) Rules, 1959
(hereinafter referred to 'Rules').
2. It is forthcoming that the applicant company (hereinafter
referred to as 'the company in liquidation') was ordered to be
wound up vide order dated 12.10.2007 passed by this Court in
Co.P.No.2/2006 and the official liquidator attached to this Court
was appointed as the liquidator of the said company as
provided under the provisions of Section 449 of the Act. That
despite the notice issued by the official liquidator to the ex-
directors, they have failed to comply with the requirements of
Section 454(1) and (2) of the Act. That pursuant to the order
dated 30.5.2013 passed by this Court in OLR No.395/2012, a
Chartered Accountant was appointed by the applicant to
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investigate into the affairs of the company and he submitted his
report on 24.7.2013.
3. In the present application, the claim of `42,64,536/-
made against the respondents are in respect of the following
amounts:
Sl.No. Particulars of Details Amount
(in Rs.)
1 Un-paid Calls 69,530
2 Sundry Debtors 41,95,006
Total 42,64,536
4. It is the claim of the applicant that with respect to unpaid
calls, a sum of `69,530/- remains unpaid as call money of
Rs.5/- per share pending against the public issue from one
Mr.S.K.Anand who was holding 13,960 shares. It is
forthcoming that in the report of the Chartered Accountant
dated 24.07.2013, it has been observed that the company in
liquidation vide its letter dated 04.02.2011 informed that the
amount of `69,530/- amount could not be collected due to
death of the shareholder. However, in the said report, it is
stated that since no records are available to show that Ex-
Directors have taken any steps to recover the unpaid money as
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call money, it was considered as misfeasance on the part of the
Directors.
5. With regard to the claim in respect of Sundry Debtors, it
is stated that vide Board resolution dated 25.06.2007, the
Board of Directors ratified the Managing Director's action in
deleting the non-receivable Sundray Debtors. It is averred that
the company instead of taking steps to realize the amount of
`41,95,006/- and the same having been written off the action
caused loss to the company and hence tantamounts to
misfeasance.
6. Respondent Nos.1 to 3 have filed their statement of
objections. In the said Statement of objections with regard to
the unpaid call money, it is stated that in view of the death of
the shareholder, despite the first attempt by the Directors in
collecting the unpaid money, the same could not be collected.
Further, it is placed on record that the Board resolution Book,
files and documents of the company in liquidation were
damage/lost during the floods of November 2005 which has
been placed on record in the 18th Annual General Body Meeting
of the company held on 08.09.2006. The allegation that
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Director of the company have note taken steps to realize the
outstanding Sundry Debtors to the tune of `41,95,006/- have
also been denied. It is specifically averred that the company in
liquidation incorporated in the year 1998 and was engaged in
the business of exporting of leather and food product.
Subsequently, the company set up a manufacturing unit for
leather shoes and jackets and due to massive international
recession of leather products in the year 1995 onwards, more
than 100 large and medium leather product/shoe manufactures
succumbed to the recession, became sick and shut down their
operations, especially due to the large scale non-payment of
export bills by buyers from the foreign markets.
7. Various other averments have been made by the
respondents in the statement of objections denying the
assertion of the applicant that the respondents are guilty of
misfeasance.
8. To prove its claim, the applicant examined its Chartered
Accountant who furnished the report as PW.1. The report of
the Chartered Accountant dated 24.7.2013 has been marked as
Ex.P1. Although time was granted to the respondent to cross
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examine PW.1 vide order dated 11.01.2023 the cross
examination was taken as 'nil' and by order dated 20.02.2013
the respondent's evidence was closed.
9. It is forthcoming from the affidavit by way of evidence of
PW.1 that only the claim made with regard to the unpaid calls
of Rs.69,530/- has been averred. There is no evidence with
regard to the claim of Sundry Debtors. Hence, the claim made
in the application with regard to the Sundry Debtors not having
been proved, the same is liable to be rejected.
10. With regard to the claim of unpaid call money, it is
forthcoming from the record that the said unpaid money was
with regard to Rs.13,906/- shares of `5 each held by one
Sri.S.K.Anand and the same remained unpaid since he was
reported to have died. The claim made by the applicants is that
since no steps was taken to recover the unpaid call money from
the legal representatives of said Sri S.K.Anand, the same
tantamounts misfeasance and breach of trust.
11. In the case of Official Liquidator of M/s Sterling
Leather (Exports) Pvt. Ltd., v. Sri Ramanathan and
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others1, a co-ordinate Bench of this Court considering a case
where in respect of a claim made in the application reliance was
mainly placed on the report of a Chartered Accountant, held
that the application for misfeasance based mainly on the report
submitted by the Chartered Accountant will not be sustainable.
The said judgment is also followed by another co-ordinate
Bench of this Court in the case of the Official Liquidator of
M/s Ideal Jawa (India) Limited (in Liqn) v. Sri Tehmton
Rustom Irani & Anr.,2
12. A co-ordinate Bench of the Madras High Court in the case
of Official Liquidator, Madras Oils and Fertilizers (P) Ltd.,
v. G.Shanmugham3 has held as follows:
"7. Section 543 of the Companies Act which enumerates
the power of court to assess damages against the
delinquent directors has set down certain norms for the
exercise of such power resulting in mulcting the ex-
officers, may be directors, with damages for not acting
reasonably and thus committing the company to
unnecessary loss. The vein that runs through the
intendment of s. 543 of the Companies Act appears to be
that there should be prima facie proof of such negligence
bordering on misfeasance and breach of trust which alone
was generally the basis for invocation of the punitive rule
contained in s. 543 of the Companies Act. No doubt, s.
543(1)(a) and s. 543(1)(b) create as between themselves
Order dated 7.4.2010 passed in CA No.1012/2008
order dated 23.2.2012 passed in CA No.888/2006
(1979) 49 CC 903
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a dichotomy in the matter of the exercise of the power of
the court in such matters. As per cl. (a) of sub-s. (1) of s.
543 of the Act, such a power to assess the damages could
be invoked in case of misapplication and retention of
monies or property of the company and on a fair and
reasonable conclusion by the court that the officers of the
company are liable or accountable for the same. The court
can then exercise its jurisdiction and assess the damages
against the delinquent director or officer. Clause (b) of
sub-s. (1) of s. 543 of the Act, however, lays down a
specific hypothesis for the invocation of the power and for
the exercise of it. It contemplates that the delinquent
director should be found to be guilty of misfeasance or
breach of trust in relation to the company. Therefore, cl.
(b) deals with a particular situation, wherein it should
appear to the court, whether on the application of the
liquidator or any creditor or contributory, that the
company whilst it was functioning acted through a body
known as the directors or the officers who are guilty of
appropriation without authority of the funds of the
company. It may ultimately be a case wherein there was
misappropriation also resulting in the breach of that faith
which the shareholders and the creditors outside the
domestic chamber of activity of a company place in the
body of directors or officers in charge of the affairs of the
company. A further elucidation of the purpose and
objective of cl. (b) of sub-s. (1) of s. 543 is not necessary
for purposes of this case. I am not, therefore, embarking
on it. But as it appears on the arguments addressed
before me, the official liquidator can succeed in making
for the issuance of the prayer in the summons only if he
proves that the respondents 1 to 4 as quondam directors
of the company have become liable or accountable for the
money which was due to the company. Certainly, this is
not a case where monies have been misapplied or monies
have been retained by the directors including the
respondents 1 to 4. The question, therefore, is whether,
in the circumstances of the case, respondents 1 to 4 or
any one or more of them are accountable for the monies
claimed in the judge's summons."
(emphasis supplied)
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13. A co-ordinate Bench of this Court in the case of Official
Liquidator of Alliance Leathers P. Ltd., (in liqn) v.
Nishath Patel and Anr., 4 has held as follows:
"8. In the above facts and circumstances, as rightly
contended by counsel for the respondents, it is not merely
sufficient to allege that since the statement of affairs
would indicate that monies were due to the company
under several heads, and on account of the inaction on
the part of the respondents, they would be guilty of
misfeasance is entirely acceptable. Apart from want of
diligence on the part of the ex-directors, it ought to be
alleged and established that there was a wilful and
culpable negligence on their part apart from there being
acts of breach of trust, resulting in misfeasance. The
circumstance that the entire assets of the company were
taken over by the KSFC along with the material
documents and records, would certainly place the
respondents at a disadvantage in taking steps to recover
the monies that may have been due to the company.
There is no serious dispute in this regard. However,
counsel for the official liquidator still contending that there
was a duty cast on the directors and that they ought to
have procured relevant documents from the KSFC or from
such other source, is an impractical suggestion and since
there is no legal provision which could have been invoked
by the ex-directors, to enable them to procure the
documents from the possession of the KSFC, the
responsibility being claimed against the respondents is
misplaced. Accordingly, the application is dismissed."
(emphasis supplied)
14. In the present case, apart from the fact that unpaid call
money in respect of the pending shares against public issue in
respect of one Mr.S.K.Anand who was stated to be deceased
has been unpaid, merely on the ground that the Chartered
(2009)151 CC 535=2009 SCC OnLine Kar 677
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Accountant has opined that the ex-directors have not taken any
steps to recover the amount unpaid call money and the
Chartered Accountant having considered it as misfeasance on
the part of the ex-directors, the present application is filed.
Hence, it is clear that in the present case apart from want of
diligence there is no allegation that there was willful or culpable
negligence.
15. In view of the aforementioned, the company application is
dismissed as being devoid of merit.
SD/-
JUDGE
BS
