Kerala High Court
The Official Liquidator vs M.Chacko Mathew on 24 March, 2025
MFCA No.3 of 2021 in
C.P.No.7 of 2013 and con.cases 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
(Original Jurisdiction)
In the matter of the Companies Act, 1956
and
In the matter of M/s.Pact Rubberwood and Allied Products Limited
(In Liquidation)
Crl. Compl. No.2/2021 in Co.Pet.7/2013
Before:
The Honourable Mr. Justice HARISANKAR V.MENON
Monday, the 24th day of March, 2025/3rd Chaithra, 1947
Complainant:-
The Official Liquidator,
High Court of Kerala, Ernakulam
representing M/s.Pact Rubberwood
and Allied Products Limited (In Liquidation)
Accused:
1. Sri.M.Chacko Mathew,
Muttathottil, Mound Wardha,
Muttambalam P.O., Kottayam District,
Pin - 686 004, Kerala.
2. Smt.Priya Chacko Mathews,
Muttathottil, Mound Wardha,
Muttambalam P.O., Kottayam District,
Pin - 686 004, Kerala.
Criminal Complaint under Section 454(5) read with Section 454 (5A) of the
Companies Act, 1956, for the failure of the accused to comply with the requirement of
Section 454(1) (2) (3) and (8) of the Companies Act, 1956 filed by the Complainant
above named praying for an order to:-
MFCA No.3 of 2021 in
C.P.No.7 of 2013 and con.cases 2
a) Summon the accused and punish them under the law for their default
under Section 454(5) and 454 (5A) of the Companies Act, 1956.
b) Direct the accused to file Statement of Affairs of M/s..Pact Rubberwood
and Allied Products Limited (In Liquidation) required under Section
454 of the Companies Act, 1956 within the time limit as ordered by this
Hon'ble Court.
and
c) order that the cost of proceedings be paid by the accused to the
complainant under section 626 of the Companies Act, 1956.
This Criminal Complaint coming on for orders on this day upon hearing
Sri.K.Moni, Standing Counsel for the Official Liquidator, M/s.Santhosh Mathew, Arun
Thomas, Veena Raveendran, Karthika Maria, Anil Sebastian, Abi Benny Areeckal,
Mathew Navin Thomas & Kurian Antony Mathew, Advocates for the Respondents, the
Court passed the following:-
MFCA No.3 of 2021 in
C.P.No.7 of 2013 and con.cases 3
HARISANKAR V. MENON, J.
----------------------------------------------------------------------
MFCA No.3 of 2021 in Co. Pet. No.7 of 2013,
Criminal Complaint No.2 of 2021 in Co. Pet. No.7 of 2013
and
Report No.36 of 2024 in Criminal Complaint No.2 of 2021
in Co. Pet. No.7 of 2013
-----------------------------------------------------------------------
Dated this the 24th day of March, 2025
ORDER
These two connected cases are with reference to the affairs
of M/s.Pact Rubberwood and Allied Products Limited, the
Company under liquidation. MFCA No.3 of 2021 is filed by the
Official Liquidator under Section 543 of the Companies Act, 1956,
(hereinafter referred to as the 'Act') read with Rule 260 of
Companies (Court) Rules, 1959(hereinafter referred to as
'Rules'), alleging misfeasance on the part of the respondents
therein in as many as seven instances. Criminal Complaint No.2
of 2021 is again filed by the Official Liquidator under Section
454(5) read with Section 454(5A) on account of the alleged
failure of the respondents to comply with the requirements under
MFCA No.3 of 2021 in
Section 454(1), (2), (3), and (8) of the Act, to file the statement
of affairs of the Company.
2. Separate counter affidavits have been filed on behalf
of the respondents in the Misfeasance Application and the
Criminal Complaint.
3. I have heard Sri.K.Moni, the learned counsel for the
Official Liquidator and Sri.Santhosh Mathew, the learned senior
counsel instructed by Sri.Kurian Mathew for the respondents.
4. Sri.Santhosh Mathew, the learned senior counsel,
would contend that the Misfeasance Application and the Criminal
Complaint referred to above have to be rejected at the threshold,
even without the need to adduce evidence, insofar as no offence
warranting invocation of the provisions are made out. He would
also rely on various judgments in support of the afore contention.
5. Per contra, Sri.Moni, the learned Standing Counsel for
the Official Liquidator, would contend that the question of closing
the applications presented by the Official Liquidator is not arising
MFCA No.3 of 2021 in
without adducing evidence. He would also rely on some
judgments in support of the afore proposition.
6. Insofar as the Misfeasance Application is filed on the
basis of the Statement of Affairs presented by the respondents
herein and the Criminal Complaint is with reference to the delay
in filing of Statement of Affairs, I propose to take up the Criminal
Complaint for consideration at first.
7. The Criminal Complaint, as already noticed, is filed by
the Official Liquidator pointing out that the accused were the
Directors of the Company under liquidation, which was ordered
to be wound up as per order dated 23.11.2016 in C.P. No.7 of
2013. The complaint further proceeds to state that under
Section 454 of the Act, the accused were liable to furnish a
Statement of Affairs within 21 days of the winding-up order,
which was not done by them. The complaint states that show
cause notices issued to the accused herein were returned with
the postal endorsement "addressee left". It is in the afore
circumstances, the Criminal Complaint was filed seeking the
MFCA No.3 of 2021 in
accused to be summoned and punished under Section 454(5)
and (5A) of the Act.
8. A counter affidavit has been filed on behalf of the
accused.
9. Sri.Santhosh Mathew, the learned senior counsel, would
point out that the management could not access the factory
premises for a considerably long period of time and hence, a
Statement of Affairs was prepared and was submitted before the
Official Liquidator as seen from Ext.R1(d) produced along with
I.A.No.1 of 2024. The fact that such a Statement of Affairs was
presented is also admitted in Report No.36 dated 30.05.2024
filed on behalf of the Official Liquidator. In the said report, it is
noticed that the Statement of Affairs presented as above was
defective and hence cannot be accepted. The report again states
that the same was sought to be sent back to the Ex-managing
Director, and the same was returned with the endorsement
"unclaimed". The report concludes by seeking permission of this
Court to return the same to the counsel for the Ex-managing
MFCA No.3 of 2021 in
Director of the Company. It is noticed that as per the order dated
25.07.2024 in Report No.36 of 2024 referred to above, the
submission made on behalf of the former Directors seeking six
months' time is seen recorded. Later, a revised Statement of
Affairs has also been produced as seen from Ext.R1(p).
10. It is in the light of the above, the submissions made by
either side are to be considered.
11. The provision of Section 454 of the Act requires the
presentation of the Statement of Affairs to the Official Liquidator.
Sub-section (3) requires the Statement of Affairs to be submitted
within "21 days" or "within such extended time" to be permitted
by the Court or the Official Liquidator. The provisions of sub-
sections (5) and (5A) under which the Criminal Complaint is filed,
read as under:-
"(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 thousand rupees] for every day
during which the default continues, or with both.
MFCA No.3 of 2021 in
5A) The Tribunal 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."
A reading of the afore provision would show that it is not every
default in complying with the provisions of Section 454, which
attracts the punishment. For attracting the rigours under Section
454, the default has to be one "without reasonable excuse". At
this juncture, reference may also be made to the provisions of
the Rules, wherein Rule 9 provides as under:-
"9. Inherent powers of Court- Nothing in these Rules
shall be deemed to limit or otherwise affect the inherent
powers of the Court to give such directions or pass such
orders as may be necessary for the ends of justice or to
prevent abuse of the process of the Court."
Thus, this Court is having inherent powers to ensure that the
ends of justice are met, so as to prevent abuse of process of law.
MFCA No.3 of 2021 in
12. Rule 128 of the Rules empowers any person who is
required to submit the Statement of Affairs under Section 454 to
seek for extension of time and sub-rule (2) permits the person
to seek an extension from this Court. Rule 132 provides as
under:-
"132. Default in complying with section 454.-Any
default on the part of any person in complying with the
requirements of section 454 shall be reported to the Court
by the Official Liquidator, and the Court may thereupon
pass such orders or give such directions as it may think
fit."
In the light of the afore, I notice that if there was any default in
complying with the requirements under Section 454, it was
obligatory on the part of the Official Liquidator to have reported
the same to this Court. On the other hand, it is noticed that the
Official Liquidator has straight away sought to launch a Criminal
Complaint. This, in my opinion, was totally incorrect and against
the statutory prescription. When that be so, there is no
requirement to proceed with the matter since the Criminal
Complaint would not lie.
MFCA No.3 of 2021 in
13. Further, I notice that the accused has since presented
the revised Statement of Affairs as noticed above. The Official
Liquidator has no case that the same is defective in any manner.
14. On the basis of the afore, I am of the opinion that in
exercise of the inherent powers of this Court, the question as to
whether the Criminal Complaint is required to be proceeded
further, arises for consideration.
15. As already noticed, it is not every default which
attracts the rigours of Section 454 (5) and (5A). I am of the
opinion that the complainant has not at all established that the
accused has acted "without reasonable excuse" to launch the
Criminal Complaint. In this connection, I am of the opinion that
reference to the judgment of the Madras High Court in P.V.R.S.
Manikumar V. Official Liquidator [(2013) SCC OnLine Mad
320] is apposite wherein the requirements to prove the
ingredients of Section 454 (5) and (5A) are held as under:-
"23. Since the requirement of absence of reasonable
excuse is an essential ingredient of an offence punishable
under sub-section (5) of 454 of the Act, the initial burden
MFCA No.3 of 2021 in
is on the Official Liquidator to prove the said fact. The
burden of proof would shift to the accused only in case
the complainant discharges the primary requirement of
the provision regarding absence of reasonable excuse.
The liability being one of criminal in nature, the onus is
on the complainant to prove the case. Therefore, it is the
duty of the prosecution to prove that in spite of the
availability of relevant records, the accused failed to
submit the statement of affairs and there was no
reasonable excuse for the default.
............
27. Sub-section (5) of Section 454 has to be read in the
light of Section 633 of the Companies Act. Section 633
of the Act permits the Court to consider over ail
circumstances of the case and to arrive at a conclusion
as to whether the accused has acted honestly and
reasonably and the default was beyond his control. In
case the Court is satisfied that the accused acted
reasonably and there was no dishonesty on his part,
necessarily, he should be relieved of the liability subject
to reasonable terms.Sub-section (2) of Section 633 also
makes the position very clear that the High Court shall
have the power to relieve him, as if it had been a Court
before which a proceeding against that officer for
negligence, default, breach of duty, misfeasance or
breach of trust had been brought under sub- section (1)
of Section 633 of the Companies Act."
MFCA No.3 of 2021 in
To the same effect is the judgment of the Karnataka High Court
in Chamundi Chemicals & Fertilisers Ltd.(in liquidation) v.
M.C. Cherian [I.L.R. 1993 KAR 620], wherein with reference
to the provisions of Section 543 of the Act, inherent powers of
the Court and the need to take evidence etc. were considered,
finding as under:-
"14. It is well laid principles of law that any proceeding
against delinquent Director in the initial stage can be
quashed if on the face of the complaint (application) no
mis-conduct viz., misfeasance or breach of trust is
constituted. In other words, the test is that taking the
allegation in the complaint/application as they are, if no
misconduct is made out, then the Company Court will be
justified in quashing the proceedings in exercise of its
inherent power."
In the light of the afore, I am of the opinion that no case is seen
made out by the complainant to proceed against the accused
with reference to the Criminal Complaint.
16. I also take note of the judgment cited by Sri.Moni in
Official Liquidator, High Court of A.P., Hyderabad v.
S.Haridas and Others [2006 133 Comp Cas 5(AP)]. That
MFCA No.3 of 2021 in
was a case where no Statement of Affairs were filed and no
excuse or cause was pleaded for the failure. It is in that
circumstances, the High Court held in favour of the Official
Liquidator. In the case at hand, the situation is quite the
opposite. The accused have relied on the Statement of Affairs
and the lack of the required pleadings so as to attract the
provisions of the statute. Therefore, I am of the opinion that the
judgment relied on by Sri.Moni is of no avail to him.
17. As regards the misfeasance application, as already
noticed, the Official Liquidator has noticed as many as seven
instances. The misfeasance application was presented on
22.07.2021, alleging that the Statement of Affairs was not filed
providing the full affairs of the assets/liabilities of the Company.
Therefore, the application is filed relying on the details available
in the balance sheet as on 31.03.2013. However, as already
noticed while considering the Criminal Complaint, the
respondents have filed the Statement of Affairs originally,
MFCA No.3 of 2021 in
followed by a revised Statement of Affairs. The misfeasance
application has not made reference to the afore.
18. Even on the face of the above, I proceed to consider
the allegations contained in the misfeasance application.
19. The first allegation is with reference to the alleged
shortage of various office equipments/generators, etc., valued at
Rs.94,036.50. The respondents have pointed out that the KSIDC
took over the factory premises in 2006 and that it might be due
to the failure of KSIDC to safeguard the machinery/equipment,
the shortage is noticed. I notice that the stand with respect to
the control with KSIDC from 2006 is noticed in the misfeasance
application itself with reference to the letter dated 02.02.2017
written by the Directors of the Company to the Official Liquidator.
Therefore, I am of the opinion that the applicant has not been
able to establish the requirement to proceed against the
respondents under the statute with respect to the afore
allegation.
MFCA No.3 of 2021 in
20. The second allegation is with reference to an amount
of Rs.5,75,982/- shown in the asset side of the balance sheet
under the head "loans and advances" without providing the
details of the security deposit on account of which the Official
Liquidator could not issue notice to the parties. However, in
response to the afore allegation, it was pointed out that in the
revised Statement of Affairs, the nature of the security deposit
is specifically shown as one made with KSEB. The Statement of
Affairs contains the following notes:-
"31. Security deposit of Rs. 5,75,982.00 made with the
Kerala State Electricity Board (KSEB) towards electricity
supply to the Factory Premises of the Company. As on
February, 2006, the money was lying with KSEB and was
receivable. The erstwhile management of the Company
is unaware if KSEB adjusted and, or recovered
outstanding dues, if any, against this security deposit
lying with it.
32. Since this fact is not known, to the best of our
knowledge and belief, the amount of Rs. 5,75,982,007 is
receivable from KSEB and for the purpose of the
Statement of Affairs in Form 57, Rs. 5,75.982.00 stands
realisable."
MFCA No.3 of 2021 in
In the light of the afore, I am of the opinion that the applicant
has not made out any case for proceeding further in the manner.
21. The 3rd instance pointed out in the application is with
reference to the failure on the part of the Ex-directors in
furnishing the details of various advances, on account of which,
notices could not be issued by the Official Liquidator to the
parties. The respondents have pointed out that, with respect to
the afore, on account of lapse of time, shut down of the
operations, etc., the details could not be collected. However, in
paragraph 35 of the Notes, forming part of the Statement of
Affairs, it is stated that none of the advances were made to any
other Directors/related parties.
22. The 4th item of misfeasance is with reference to the
failure to share the details of "current investments" of Rs.100/-
against mutual funds in paragraphs 21 and 22 of the Note,
forming part of the revised Statement of Affairs. It is pointed out
that the relevant Scheme documents are not available essentially
MFCA No.3 of 2021 in
on account of lack of access to factory premises, etc. and hence
the amount is shown as realized.
23. As regards the 5th item of misfeasance an allegation is
with reference to failure to provide details of Rs.46,82,813/-
against "work-in-progress". The respondents have pointed out
with reference to paragraphs 23 and 24 of the Notes forming part
of the Statement of Affairs that the Company had an inventory
of raw materials in the form of seasoned rubberwood, which
ought to have been stored in the proper manner for which
electricity supply was required, and since the electricity supply
stood discontinued in 2006, their value stood lost. The afore
statement is to be noticed along with the taking over of the
premises by KSIDC in 2006, and hence, I am of the opinion that
no steps are required to be continued.
24. The 6th allegation is with reference to an amount of
Rs.53,097/- towards "trade receivables", details having not been
furnished by the respondents. Here also, the respondents have
referred to paragraphs 25 and 26 of the Notes forming part of
MFCA No.3 of 2021 in
the Statement of Affairs to show that it was with reference to
31.03.2006 afore amount was shown, on account of afflux of
around 18 years, as not realizable.
25. The last allegation is with reference to a sum of Rs.
11,801/ under the head "cash and bank balances", the details
not being provided by the respondents. Here also, the stand
taken is with reference to the takeover of the Company by KSIDC
in 2006 on account of which details are not available.
26. I also notice that the Official Liquidator has been
permitted to appoint security personnel to safeguard the assets
of the Company in the factory premises only during 2017, as per
an order dated 30.03.2017. This all the more supports the case
of the respondents herein.
27. In the light of the afore, the applicant has not
established the case for proceeding against the respondents for
misfeasance.
28. Further the judgment of the Karnataka High Court in
Chamundi Chemicals (supra) would apply to the case at hand
MFCA No.3 of 2021 in
also. This Court notices that many of the allegations against the
respondent herein are with reference to the takeover of the
Company by KSIDC on account of which the respondents failed
to have any control over it. I am of the opinion that the Official
Liquidator has failed to prove any breach of trust committed by
the Directors to maintain an application of misfeasance.
In the result:
i. MFCA No.3 of 2021 in Co.Pet.No.07 of 2013 is
dismissed.
ii. Criminal Complaint No.2 of 2021 in Co.Pet.No.07 of
2013 is also dismissed.
iii. In view of the order of this Court dated 25.07.2024, no
further orders are required in Report No.36 of 2024.
Hence, Report No.36 of 2024 in Criminal Complaint
No.2 of 2021 in Co.Pet.No.7 of 2013 is closed.
Sd/-
HARISANKER.V. MENON, JUDGE
ln
