Telangana High Court
K. Thayagaraj, vs M/S Asia Pacific Investment Trust on 11 September, 2025
Author: K.Lakshman
Bench: K.Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
Company Application No.547 OF 2002
in
Company Application No.611 OF 1998,
Company Application No.611 OF 1998,
and
Company Application No.477 OF 2010
in
COMPANY PETITION No. 84 OF 1997
COMMON ORDER:
Heard Sri G. Kalyan Chakravarthy, learned counsel for the
Official Liquidator, Sri S.Ravi, learned Senior Counsel appearing for
respondent No.2 and 4 in COMPA No.547 of 2002 and 611 of 1998,
Sri Deepak Misra, learned counsel appearing for respondent Nos.3, 5
and 10 in COMPA No.547 of 2002 and respondent Nos.3 and 5 in
COMPA No.611 of 1998. There is no representation on behalf of
respondent Nos. 6, 7 and 9 in COMPA No.547 of 2002 and COMPA
No.611 of 1998. Mr. S.Seshasayee, Respondent No.8 was discharged
by this Court. Sri S.F.H.J.Manikshaw, Respondent No.1 is no more.
2. Vide order dated 19.08.1998, this Court disposed of
C.P.No.84 of 1997 and ordered winding up of M/s. Asia Pacific
Investment Trust Ltd.
3. Thereafter, OL has filed COMPA No.611 of 1998 under
Sections 454 (5) and (5A) of the Companies Act, 1956 ( for short, 'the
Act') read with Rules 125 and 132 of the Companies (Court) Rules,
1959 ( for short, 'the Rules'), to Summon the respondent Nos.1 to 9
herein/Accused Nos.1 to 9 and to punish them under sub-sections (5)
and (5A) of Section 454 of the Act, for non-compliance with the
requirements under the said section with the following contentions:-
i. OL attached to this Court has issued notices to Respondents
No.1 to 9 (Ex-Directors) of the said company for filing of
statement of Affairs and also to deliver possession of the
books of accounts and other records on 07.10.1998,
09.10.1998 and 19.11.1998, since the Respondents
/Accused failed to submit statement of affairs within 21
days from the date of winding up order, as prescribed under
Section 454(3) of the Act, 1956. According to the OL, the
default commenced on 10-09-1998 i.e. 21 days after the
winding up of the company.
ii. The OL in his report dated 24.11.1998 stated that no
extension of time was sought for by the Accused either
from him or from this Court as stipulated under section
454(3) of the Act. Therefore, they are liable to be punished
under subsection (5) and (5A) of the Section 454 of the Act,
for their non-compliance of the Statutory requirements
under sub-section (1) (2) and (3) of the Section 454 of the
Act.
iii. Therefore, he sought to allow the present application.
4. On the other hand, the respondent Nos.1 to 7 have filed
counter stating that Respondent No.1 resigned and his resignation was
accepted by the Board of Directors held on 09.04.1997. Respondent
No.2 resigned on 09.04.1997, Respondent No.3 filed an affidavit of
concurrence to the statement of affairs on 08.03.1999 filed by one Sri
M.C.Jain, and it was taken on record by the Official Liquidator.
Respondent No.4 resigned and his resignation was accepted on
10.02.1996. Respondent No.5 resigned and his resignation was
accepted on 07.03.1997. Respondent No.6 resigned and his
resignation was accepted on 28.06.1997 and Respondent No.7
resigned and his resignation was accepted on 15.01.1997. No counter
filed on behalf of A.9. They all stated that as they resigned long back,
they cannot be expected to be aware of the current status of the
company and prepare and file the statement of affairs thereof. They
have also filed copies of Form No.32. Therefore, they sought to drop
charges against them.
5. By an order dated 29.03.2000, Respondent No.8 was
discharged as he was neither the Managing Director nor a Director in
the Board of Directors of the Company which was not disputed by the
OL. On 19.02.1999, One Mr. M.C. Jain, claiming as Ex-Director of
the company, has submitted the statement of affairs as required
u/s.454 of the Act.
ANALYSIS AND FINDING OF THE COURT:-
6. Perusal of the report dated 15.04.1999 of the OL would
reveal that one Sri. M.C. Jain, Ex-Director of the company has
submitted the statement of affairs of the company on 19.02.1999. OL
filed a report on 30.11.1999 stating that in respect of the cessation of
Accused Nos. 1, 2, 5 and 6, on his verification, no Form Nos.32 have
been found in the Document File maintained by the Registrar of
Companies in respect of Resignation. The OL also states that the vide
order dated 12.04.1999 in COMPA No.182 of 1999, this Court has
appointed Mr. Satyam and Mr. Veerabhadra (Chattered Accountants)
to scrutinize the statement of affairs filed by Mr. MC. Jain with
reference to the books of accounts. But in spite of their efforts, they
have not found any books of accounts.
7. The OL has submitted a scrutiny report, in which it is stated
that the statement of affairs filed by Mr. M.C. Jain was defective and
seeking clarifications from the same. In the reply to the said scrutiny
report, Mr. M.C.Jain gave clarification dated 18.05.2000 stating that
the statement of affairs has been prepared on the basis of information
taken from the books of accounts and other records available with the
Company. He has also stated that all the securities listed out in the
statement of affairs were being kept in safe custody within the office
premises of the company as on the date of the winding-up of the
company. Thereafter keys of the office were handed over to the Office
of the Official Liquidator. If any inventory is to be taken by the office
of the OL, they could tally the same with the list provided in the
statement of affairs. In case, if further presence is required for
verifying the stocks his representative will join for verification. His
representative was positioned in the office for a period of 2 months
after the date of winding-up order only for the purpose of handling
over all documents and providing all information sought for by the
Official Liquidator.
8. COMPA No. 512 of 2001 dated 02.08.2001 was filed by the
OL to implead Mr. M.C. Jain as Respondent No.10 in COMPA
No.611 of 1998 was allowed by this Court vide order dated
05.04.2002 An appeal vide O.S.A.No.31/2002 filed by said Mr.
M.C.Jain, against the said order dated 05.04.2002, was allowed by the
Division Bench vide an order dated 18.03.2006 setting aside the order
dated 05.04.2002.
9. By a common order dated 16.10.2001, this Court has
constituted a Committee under the chairmanship of Sri V.L.N.G.K.
Murthy, consisting two representatives of the OL, one representative
of Mr. M.C.Jain, a Chartered Accountant, one Computer Operator and
one Advocate, to recover the amount due to the company and file
report to the said effect. The Chairman of the said Committee has
submitted a memo dated 16.10.2001 urging to relieve him as
Chairman on the ground that the reasons are beyond his control and no
progress has been shown in the working of the Committee.
10. In the report dated 07.06.2002, the OL with regard to the
recovery of debts, stated that despite his sincere efforts, he could not
be able to recover dues and he also mentioned reasons in detail.
11. In order to prove the same, during cross-examination of
D.W.1/A.2 - Mr. R.S.Chowdhury, Ex.Director on 26.07.2007 by Mr.
M. Anil Kumar, learned counsel for the OL, he stated that he had no
knowledge of any financial or management crisis in any of the Board
meeting which he attended. He stated that Managing Director has
accepted his resignation on 9.04.1997 and he has filed Form No.32 in
proof of the same. As a Vice-Chairman, he was not looking after the
day to day affairs of the company and hence he was not liable to file
any statement of affairs under Section 454 of the Act as he resigned as
Director.
12. Further, during cross-examination of P.W.1/Mr. K.Nanda
Kumar, L.D.Clerk of OL Office, by Sri. Milind G.Ghokale, learned
counsel for the respondent Nos. 1, 3 and 5, he stated that he was not
aware of the fact that when the accused were appointed as Directors
and they resigned. When he was further cross-examined by Sri S.Ravi,
learned counsel for the respondent No.2, he stated that out of those
persons who signed the statement of affairs, said to have been
Directors, only Lt.Gen. Depinder Singh and Mr. A.K.Sipani filed
Form 32. He served papers on the counsel for A-2 subsequently.
When he was further cross examined by Sri.B.Chandrasen Reddy,
learned counsel for A.7, he stated that notice was not sent to the
address mentioned in Ex.P.7-Form No.32 because the same were
collected by him subsequently after filing the complaint. He stated
that he was not aware as to whether A7 has any role to play in the
affairs of the company after 15.01.1997.
13. After completion of evidence, A.2, 3 and 5 were examined
under Section 313 CrPC, wherein in one voice, they spoke that they
were not aware of the facts that whether the debtors have denied the
liability, they have handed over the books of accounts to the OL and
when they were permitted to verify and statement of affairs despite
they did not rectify the defects. Wherein, A.2 has stated that he has
received Ex.P9 - notice dated 29.09.1998. On 14.06.1997, the
Managing Director of the company has accepted his resignation dated
09.04.1997 and he did not file a copy of Form 32. He is a N.R.I and
was not involved in the working of the company at any stage other
than occasional Board meeting which took place once or twice a year
and he was not aware of the facts required in this case. A.3 stated that
he resigned as a Director of the Company and has no knowledge what
transpired subsequent to his resignation. Whereas, A.5 stated that he
was a Part-time Director, for a period of 2 years and has resigned on
10.02.1996 and has no knowledge of accounts being maintained since
then.
14. The OL has filed a report in August, 2019 stating that since
the efforts to realize the assets and debts by appointing an auditor and
constituting a Committee proved futile, he filed an application vide
COMPA No.673 of 2003 before this Court under Section 543 (1) of
the Act, against 14 Ex-Directors of the company. OL in his report
filed in August, 2019, stated that without verifying the credit
worthiness of the clients, the management of the company has lent
money to many financial institutions which siphoned funds. The
funds transferred from Nagarjuna group to Prudential group was
substantiated by the inspection report. The OL has mentioned a list of
companies to which the management has given loans and the inability
of the auditors to look into the documents/books of accounts to prove
the guilty of the Ex-Directors.
15. In the light of the above facts, it is apt to discuss the relevant
sections of the Act and the Rules which are extracted below:-
Section 454 of the Act- Statement of affairs to be made to the Official
Liquidator.
(1) Where the Tribunal has made a winding up order or appointed the
Official Liquidator as provisional liquidator, unless the Tribunal 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 affidavit, and containing the following
particulars, namely : -
(a) the assets of the company, stating separately the cash balance in
hand and at the bank, if any, and negotiable securities, if any, held by
the company ;
(b) its debts and liabilities ;
(c) the names, residences and occupations of its creditors, stating
separately the amount of secured and unsecured debts ; and in the case
of secured debts, particulars of the securities given, whether by the
company or an officer thereof, their value and the dates on which they
were given ;
(d) the debts due to the company and the names, residences and
occupations of the persons from whom they are due and the amount
likely to be realized on account thereof ;
(e) such further or other information as may be prescribed, or as the
Official Liquidator may require.
(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 Tribunal, 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 [Tribunal] may, for special
reasons, appoint.
(4) Any person making, or concurring in making, the statement and
affidavit required by this section shall be allowed, and shall be paid by the
Official Liquidator or provisional liquidator, as the case may be, out of the
assets of the company, such costs and expenses incurred in and about the
preparation and making of the statement and affidavit as the Official
Liquidator may consider reasonable, subject to an appeal to the Tribunal.
(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.
(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.
(6) Any person stating himself in writing to be a creditor or contributory of
the company shall be entitled, by himself or by his agent, at all reasonable
times, on payment of the prescribed fee, to inspect the statement submitted
in pursuance of this section, and to a copy thereof or extract therefrom.
(7) Any person untruthfully so stating himself to be a creditor or
contributory shall be guilty of an offence under section 182 of the Indian
Penal Code (45 of 1860); and shall, on the application of the Official
Liquidator, be punishable accordingly.
(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.
Rule 125 and 132 of the Rules:-
Rule 125: Application by Official Liquidator under section 454(2) - The
Official Liquidator may apply by summons to the Court for an order
directing any person who, in his opinion, is liable to furnish a statement of
affairs under section 454, to prepare and submit such a statement or concur
in making the same. Notice of the application shall be served on the person
against whom the order is sought. Where the Court makes the order, such
order shall be in Form No. 56 with such variations as may be necessary.
Rule 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.
16. In the present case, the proceedings under Section 454(5)
and 454(5A) of the Act, have been initiated by OL for alleged delay in
filing the Statement of Affairs against all the accused.
17. In C.R.E. Wood Company Pvt. Ltd. (in liquidation) v.
Sardar Iqbal Singh 1, the Delhi High Court categorically held that
merely because a person is Director of the company will not make him
liable under section 454(5) of the Act. The Court has to see whether
there was a default, and it was without reasonable excuse. In the said
case, the record therein was completely spoiled and, therefore, it was
concluded that the concerned persons were liable to be acquitted
because there was reasonable excuse for not filing the statement of
affairs.
18. The relevant paragraph of the said judgment is extracted
below:-
"7. In my view, the mere fact that Iqbal Singh was director of the
company in earlier years would not render him liable under Section
1983 SCC OnLine Del 265
454(5) of the Companies Act unless it is shown that he held the status of
director on the date of winding up order. This could be done either by the
production of the company's record or by summoning an official of the
Registrar of companies with the record of that office. None such has been
done and therefore it is difficult to convict Iqbal Singh for his failure to file
the statement of affairs. The onus in this criminal trial must rest on the
complainant.
8. Even otherwise. Section 454(5) of the Companies Act enjoins that a
person can be convicted and punished under its provisions if he makes
default in complying with the requirements of the Section without
reasonable excuse. In other words, the court has not only to be satisfied that
there was default but also that it was without reasonable excuse. Now in the
present case as noted above the record of the company had been as per
admission of the Official Liquidator completely spoiled when it bad been
left on an open terrace by the landlord, Public Witness 1 P. Chandra,
Assistant Official Liquidator further admitted in cross-examination that any
statement of affairs prepared on the basis of that record would not have been
of any use and that no useful statement of affairs could have been prepared
there from. As regards the statement of affairs fired by Iqbal Singh later on
11-5-1982 on the basis of compilation by the Chartered Accountants, he
stated that the same was entirely defective and of no use".
19. Delhi High Court emphasized that mere past association as
a Director in earlier years does not automatically create liability under
Section 454(5) of the Act, 1956 unless it was without a reasonable
excuse. The duty to file a Statement of Affairs is restricted to
Directors and Officers who were in office on the relevant date of the
winding-up order which prevents an imposition of an impossible
burden upon persons who have since long severed their connection
with the management of the company and who, therefore, may not
have access to the books or affairs of the company at the relevant
time. Therefore, the ratio laid down by the Delhi High Court in
C.R.E. Wood Company (supra) squarely applies to the present case.
20. Perusal of record would reveal that Respondent Nos.1 and
2/A1 and A2 had resigned on 09.04.1997. Respondent No.4/A.4
resigned on 10.02.1996. Respondent No.5/A5 had resigned from the
directorship on 07.03.1997. Respondent No.6/A6 resigned on
28.06.1997 and Respondent No.7/A.7 resigned on 15.01.1997. All
these resignations took place more than one year prior to the passing
of the winding-up order on 19.08.1998. Further this Court, vide
docket order dated 30.03.2010 has dropped charges against Accused
No.1 as he was no more. In terms of Section 454 of the Act, and as
explained in C.R.E. Wood Company (supra), liability to file the
Statement of Affairs arises only in respect of Directors who are in
office on the date of the winding-up order. Since the said accused had
ceased to be Directors well before that period, they cannot be fastened
with any criminal liability, as they specifically contended that they are
not in the possession of books of accounts and have resigned long
back. The onus to establish that the persons were held the status of
Director on relevant date of winding up, rests on the complainant, who
must produce company records or summon ROC to the officials.
Therefore, no criminal liability under Section 454(5) and (5A) can be
imposed on accused Nos.1, 2, 4 to 7.
21. In P.M.A. Nambudiripad v. Official Liquidator 2 , a
Division Bench of Kerala High Court held:
"6..."We need only point out that sub-section (3) proceeds on the basis that
the obligation to file the statement arises on the relevant date, which is so
only so far as those persons mentioned in the earlier part of Section
454(2) who are bound to submit the statement even without any requisition
by the official liquidator are concerned. Sub-section (3) would, therefore,
govern only those whose obligation to submit the statement arises on the
relevant date, and not those who become bound to do so only on the official
liquidator requiring them to do so."..."
22. While dealing with a similar issue in the Official
Liquidator, High Court of Andhra Pradesh, Hyderabad V. Koganti
Krishna Kumar 3 , the erstwhile High Court of A.P., referring to
P.M.A. Nambudiripad (supra) had an occasion to consider the
liability of Ex-Directors to file the Statement of Affairs under Section
454 of the Companies Act, 1956 and held as follows:-
17. The question that remains is, when and under what circumstances a
person who ceased to be a Director some time before the relevant date can
be required to submit and verify statement of affairs. This question has
arisen before other High Courts and I have ample guidance in that regard. In
Devinder Kishore Mehra's case, (1980) 50 Com Cas 699, the Division
Bench of the Delhi High Court has held as follows:--
(1979) 49 Comp Case 81,
1993 SCC OnLine 472
"The next contention on behalf of the appellant is that the official
liquidator can only require such other persons to submit a statement of
affairs, subject to the directions of the court, as are in a position to
give relevant information. This postulates that the Court would apply
its mind and decide in each case whether such direction should be
given. It is not contemplated that the court would give direction to the
official liquidator to require any and every person to file a statement
of affairs merely as an academic exercise. The purpose of getting the
statement of affairs is to enable effective and proper winding up of the
company. The court is not required to give a direction which in effect
would be infructuous. We are in entire agreement with this
submission. Indeed, our learned brother has noticed that the appellant
was not in a position to know anything about the affairs of the
company ever since he was ousted from the management, way back in
December, 1966. He had ceased to have approach or access to the
books and papers of the company. He did not take part in its
management. He even refused to sign the provisional balance-sheet
for being submitted to the Punjab National Bank in December, 1966.
In this view of the matter, asking such a person to file a statement of
affairs is an exercise in futility and we see no reason why a mere
academic order should be passed.
xxxxxxxxxxxx
It has been urged that even past officers may be able to give valuable
information and S. 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 Jain
Official Liquidator of R.S Motors P. Ltd. v. Jagjit Singh Sawhney,
(1974) 44 Com Cas 381 : ILR (1974) 1 Delhi 243, if the books of the
company are not available to a director who is required to file a
statement under S. 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 for giving directions under S.
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.
23. Placing reliance on the said principle in Koganti Krishna
Kumar (supra), it was held that Section 454 (3) must be read with
Section 454(2). The obligation to file the statement of affairs arises on
the relevant date only in respect of those persons enumerated in
Section 454(2) i.e. those bound even without any requisition by the
OL, and in a case where no such appointment is made, the date of the
winding up order is considered for filing statement of affairs. Thus,
Section 454 (2) applies only to persons whose duty to file accrues on
that date, and not to those who become duty-bound only upon
requisition by the OL.
24. It is further held therein that before directing any past
officer to submit a Statement of Affairs, the Court must first satisfy
itself that such person is in a position to furnish relevant information;
otherwise, requiring compliance would be an academic exercise. The
object of Section 454 is to facilitate effective winding up, not to cast
an impracticable or futile burden on those who had ceased to
participate in the affairs of the Company long before the relevant date
and who had no access to its books or records.
25. In the light of the aforesaid principles, coming to the
facts of the case, as discussed supra, it is not in dispute that the
winding-up order in respect of M/s. Asia Pacific Investment Trust
Ltd. was passed on 19.08.1998, and that many of the accused
namely, A.1-Mr. HFJ Manekshaw, A.2-Mr. Rathan Singh
Choudhary, A.4- Mr. Tushar Desai, A.5- Mr.J.C. Luther, A.6-
A.K. Singla and A.7- Mr.K.Thyagaraj, have stated that they had
resigned from the Board of Directors, prior to the relevant date.
Although the OL contends that the requisite Forms Nos.32 were not
traceable in the Registrar of Companies file, there is no categorical
assertion in the affidavit that these individuals were holding office
during winding up proceedings. Therefore, it cannot be said that the
accused were in a position to furnish the necessary details or the
statement of the affairs.
26. As regards A.3 - Lt. Gen. Depinder Singh, the record would
reveal that he continued to be a Director of the Company within one-
year immediately preceding the date of the winding-up order, and is,
therefore, within the statutory bracket under Section 454 (2) of the
Act. He had submitted an affidavit of concurrence with the statement
filed by Mr. M.C. Jain on 08.03.1999. Mr. Jain filed the statement of
affairs on 19.02.1999. However, the OL alleged that several
deficiencies and contradictions in the said statement, including
missing records, untraceable debtors, and unverifiable claims, which
hampered the liquidation process.
27. In The Official Liquidator, Security and Finance
(P.) Ltd. v. B. K. Bedi 4, the Full Bench of the Delhi High Court
considered the aspect as to whether in a prosecution under Section
454(5) of the Act, the burden of proving that the accused had no
reasonable excuse for making the default in respect of which he is
being prosecuted lies upon the prosecution. The Full Bench, observed
as follows:
"(24) If therefore the Parliament wanted that mere making of default would
be an offence and that onus was on the accused to show that he had a
reasonable excuse for the same, Section 454(5) of the Act would have been
differently worded. Admittedly, the legislature has not so provided and we
do not find any compelling reasons to imply and place that onus on the
accused.
(25) As a result we hold that in a prosecution under Sec. 454(5) and (5A)
the burden of proving that the accused without reasonable excuse made a
default is on the complainant in the first instance. The question of onus will
have to be decided by keeping the distinction between legal burden of proof
laid down by law and a provisional burden raised by state of evidence, as
explained by us in detail above."
[1974] 44 Comp Case 499,
28. Further, a Division Bench of the High Court of Judicature at
Hyderabad for the State of Telangana and the State of Andhra Pradesh
in M/S. Vertex Stock & Shares Pvt. Ltd., (In liquidation) rep. by
the Official Liquidator, vs. Sri Vemuri Venkatewara Rao, Ex.
Director5, on consideration of Section 454 of the Act, answered the
reference by laying down clear propositions with regard to various
aspects i.e. when default amounts to an offence, what constitutes
reasonable excuse, and how the burden of proof shifts on to the
accused.
29. The principles culled out therein are as follows:-
In the result, the reference is answered holding that:
(1) The offence under Section 454(5) of the Companies Act, 1956 is if a
person makes default in complying with any of the requirement
under Section 454 without reasonable excuse, and not mere making default
in complying with the requirements of Section 454.
(2) It is only if a person required under Section 454(2), to make the
statement of affairs referred to in Section 454(1), fails to do so within 21
days of the order of winding up (Section 454(3) read with Section 454(8))
would he then be said to have committed an offence under Section 454(5).
(3) The initial onus is on the Official Liquidator to prove that the person
concerned had no reasonable excuse for making default in filing the
statement of affairs within time.
(4). While the initial burden to prove the ingredients of Section 454(5) is on
the prosecution (i.e., the Official Liquidator), very slight evidence in this
regard may suffice. The Official Liquidator would be deemed to have
discharged his burden if he adduces evidence, circumstantial or direct, as is
2018 SCC OnLine Hyd 316
sufficient to raise a presumption that the accused did not have reasonable
excuse for his failure to make the statement of affairs within time.
(5). On the initial onus being discharged by the Official Liquidator, the
burden would then shift to the accused to prove facts, in his exclusive
knowledge, to establish that he had reasonable excuse in not making the
statement of affairs, before the Official Liquidator, within time.
(6). The compliant of facts, submitted by the Official Liquidator
under Section 454(5-A), should disclose that:-
(a) the accused is a person referred to in Section 454(2) of the Act,
and is liable to file the Statement of affairs.
(b) he had sent a notice to the persons, referred to in the first limb
of Section 454(2), to submit a Statement of affairs;
(c) the time prescribed, for filing the statement of affairs, has lapsed;
(d) no extension of time, to file the Statement of affairs, had been
sought either from him or from the Court;
(e) in case he has taken custody of the books of accounts of the
company, he has intimated the persons concerned that the books of
accounts were available with him, despite which the person concerned
had failed to file the Statement of affairs; and
(f) reason why he believes that the person concerned had no
reasonable excuse in making default in complying with the
requirements of Section 454.
(7). If these facts are stated in the complaint of facts, the Court would then
take cognizance under Section 454 (5-A), of the offence under Section
454(5), and then follow the procedure laid down in the Code of Criminal
Procedure for trial of summons cases by Magistrates.
(8). The onus would then shift to the accused to show that he had reasonable
excuse for not filing the statement of affairs within time.
30. In the light of the aforesaid principle laid down by the High
Courts, coming to the present case, as discussed supra, the winding up
order was passed on 19.08.1998 and there was an obligation on the
part of the management of the company in liquidation to file the
statement of affairs within 21 days from the date of winding up order
is mandated by Section 454 (3) of the Act. In the present case, the
accused Nos.1, 2, 4 to 8 had resigned from the office of directorship
much prior to the date of winding up of the Company by virtue of the
order of this Court, and that their resignations were duly accepted by
the Board of Directors in the year 1997 with requisite returns in Form
No.32 filed before the Registrar of Companies. There is no
representation on behalf of A.9, his whereabouts are not known and
also that the learned OL did not produce any evidence either oral or
documentary to show that A.9 was a Director on the date when the
winding up order was passed. The contention of the above accused
that having ceased to be Directors long before the relevant date, they
were not in a position to furnish the necessary information for
preparation of the statement of affairs is to be considered. Accused
No.3 had filed an affidavit of concurrence to the statement of affairs
submitted by Sri. M.C.Jain, which was taken on record by the OL.
Accused No.8, by order dated 29.03.2000, stood discharged.
31. The only allegation against A.3 is that he was the Managing
Director at the relevant date and he filed an affidavit in concurrence to
the statement of affairs filed by Sri M.C.Jain with delay. As discussed
supra, the aspect of delay cannot be attributed to any of the accused
much less to A.3, since there is no deliberate omission or ill-intention
on his part. Even the record, does not disclose the presence of mens
rea in causing such delay, and the explanation offered indicates that
the delay was occasioned by circumstances beyond his control and
rather than by any conscious or willful default.
32. This Court in Criminal Appeal No. 67 of 2023, while
dealing with offences under the Income Tax Act, 1961, has addressed
the issue of culpable mental state, holding that in the absence of such a
mental state, the accused is entitled to plead it as a defence for the act
charged. It further stated that the accused must raise the plea of
absence of culpable mental state before the trial court, which is then
required to consider it when adjudicating the matter. This court while
rendering that judgment has referred to the Apex court judgment in
Prakash Nath Khanna v. CIT6, where the court has considered the
Scope and ambit of the expressions "Willfully fails" and " in due
time" mentioned in Section - 276CC of the Act, 1961. The relevant
paragraph of Criminal Appeal No. 67 of 2023 is extracted as under:
. (2004) 9 SCC 686
"16. The Apex Court held that there is a statutory presumption
prescribed in Section - 278E of the Act, 1961. The Court has to
presume the existence of culpable mental state, and absence of such
mental state can be pleaded by an accused as a defence in respect to the
act charged as an offence in the prosecution. The accused has to plead
the absence of culpable mental state before the trial Court and the trial
Court has to consider the same when the matter is taken up for trial."
33. Applying the above principle to the facts of the present case,
the allegations against Accused No.3 do not disclose any element of
wilful default or deliberate intention to evade compliance. The
material placed on record, indicates only a delay in compliance and
not a conscious or intentional act. In the absence of such culpable
mental state, which forms the very foundation for attracting penal
consequences, the prosecution cannot be sustained. Therefore, by
necessary application of the ratio laid down in Prakash Nath Khanna
(supra) and as reiterated by this Court, it is evident that Accused No.3
cannot be fastened with criminal liability, and the allegations levelled
against him remain without legal substance.
34. It is also apt to note that A.3 is aged about 95 years as on
today.
35. Therefore, it is evident that there is no material to suggest
that A.3 had acted with any mens rea or culpable mental state. The
lapse was inadvertent, occasioned by reasons beyond his control.
Consequently, the allegations levelled against the accused, more
particularly A.3, are not sustainable in law and cannot be accepted or
treated as proved. Therefore allegations levelled against all the
accused particularly against A.3 (as he was the managing director on
the relevant date of the winding up) by the OL are not proved.
36. In view of the facts and circumstances of the case, this
Court is of the considered opinion that the contention of the OL that
the accused have committed default in filing the statement of affairs as
required under Section 454 of the Act, is untenable and cannot be
accepted since the statement of affairs was eventually filed and is on
record. Though the OL pointed out many deficiencies and
contradictions in the statement of affairs to which A.3 has filed
affidavit in concurrence, he failed to prove the said allegation. Perusal
of the record would reveal that there is no intention on the part of A.3
in submitting the statement of affairs with delay. When the case is so,
the ends of justice would not be adequately met if A.3 is convicted as
sought by the OL.
37. In the light of the aforesaid discussion, this Court is satisfied
that the facts alleged against A.1 to 9 do not constitute any offence
under Section 454 (5) and 5 (A) of the Act and they are entitled for
exoneration from the punishment.
COMPA No.547 OF 2002 in C.P.No.611 OF 1998,
38. During the pendency of COMPA No.611 of 1998, the OL,
filed COMPA No.547 of 2002 under section 457 (1) (e) of the Act,
read with Rule 9 of the Rules, against Respondent Nos. 1 to 10
seeking following reliefs:-
i. to appoint an auditor or auditors to examine, investigate and
look into the affairs, books and accounts of the company with
particular reference to Sections 542 and 543 of the Act and to
submit report as to whether the amount shown as realizable by
the Ex-Directors is true, whether the funds of the company are
misapplied, mis-utilised or diverted or whether the directors of
the company have been guilty of any misfeasance or breach of
trust in relation to the company,
i. to refer the matter to the Economic Offence Wing of CBI
situated at Chennai or CBCID or Economic Offences Wing of
State Police to investigate into the aspects:-
a) to fix the time for the auditors and investigating agency to
give their report,
b) to direct the Ex-Directors including Sri M.C.Jain to give all
the information to the auditors and Investigating Agency,
c) to permit the OL to allow the auditor and Investigating
Agency to inspect the books of accounts of the company under
his custody and his record in relation to the company,
d) to fix the fees of the auditors so appointed,
e) to direct Sri M.C.Jain and/or other Directors to pay the fees
and expenses of the auditors so appointed in advance to be
deposited with the OL,
f) to permit the auditor so appointed to look into the records in
relation to the company under the custody of any Government
or statutory agency for the limited purpose of procuring
information in relation to the affairs of the company, and
g) to permit the auditor or auditors to take written statements
from the Ex-Directors and officers of the company wherever
necessary and for costs.
39. With the aforesaid reliefs, the Official Liquidator contended
as follow:-
i. As per the Statement of affairs submitted by the Ex-Directors,
there are about 1550 trade debtors, but there are no full address
particulars in respect of 923 debtors from whom the Company
has to recover a sum of RS.60 Crores.
ii. In respect of 627 cases, the OL has issued notices to the
debtors, out of whom 295 were served and 313 returned
unserved. 128 debtors out of 295 who were served with the
notices have denied any liability to the company. In addition to
these, there are about 84 cases where the Ex-Directors have
shown the money as due and payable, the parties have produced
termination letters issued by the company.
iii. Due to non- availability of information in the books of the
company and the statement of affairs as also non-cooperation
from the Ex-Directors of the company, he could not proceed to
realize the debts to which the company is entitled to.
iv. OL in his report submits that someone who is competent has to
go beyond the facts stated in the statement of affairs and
ascertain whether the debt transactions disclosed in the
statement of affairs are correct, whether proper care has been
taken by the persons in charge of the management in the matter
of extending hire-purchase loans, whether any misfeasance,
malfeasance or negligence was involved in the matter of
conduct of the affairs of the company.
v. One M/s Satyanarayana and Veerabhadra, Chartered
Accountant have submitted a report on 28.03.2000 wherein it
was stated that they have searched for two months at the office
of the company for books of accounts to find out the basis on
which statement of affairs is prepared, but they are not able find
those books at the office of the company to verify the statement
of affairs.
vi. OL is unable to find the books of accounts relating to trade
debtors, loans and advances and also other files including stock
registers as they are not physically available. Therefore,
investigation is necessary to find out when the business of the
company went bad, whether any amount was advanced to the
incapable persons for repayment, whether any unauthorized
adjustments were made or whether any money was diverted
either to the companies or whether Ex-Manager has been guilty
of any misfeasance or breach of trust in relation to the
company.
vii. This Court on 27.07.2001 in COMPA No.156 of 2000 has
directed the OL to file an Administrative Report stating the
reasons therefor as to why Sri.M.C.Jain was not shown as an
accused in COMPA No.611 of 1998.
viii. OL has filed the Administrative Report on 10.08.2001 stating
that Form No.32 and 29 which are relating to appointment and
consent of a Director relating to Sri.M.C Jain were not found in
the documents. However, the computer statement showing total
Directors and their addresses including the name of Sri M.C.
Jain as a Director w.e.f. 09.04.1997.
40. On the other hand, Respondent No.9 i.e. Sri M.C.Jain filed
counter contending as follows:-
i. Subsequent to the audit conducted by the Chartered Accountant, a
search was conducted and nearly 700 files were retrieved by his
representative which shows that there was no diligence shown by
the OL in preparing the inventory records and other items, entire
premises of the company and all its records have been in the
possession of OL since 1998. Therefore, the report of the
Chartered Accountant is not to be considered at all as he was
unable to locate the relevant files.
ii. A similar application has been filed by the OL in the month of
September, 2000 vide C.A No.424 of 2000 with similar relief and
vide order dated 11.10.2000, the same was refused by this Court.
Filing the present application with the similar relief is nothing but
an abuse of the process of the Court.
iii. He has also relied on the Sections 235, 236, 237 and 239 of the
Act, wherein it deals with that the Central Government has the
powers to investigate in the affairs of a company. The Court under
Section 237(2) has specific power to order inspection. When the
Act provides for investigation, reference to CBI for investigation
need not be sought.
iv. OL has nowhere pointed out any offence said to have been
committed by any of the Directors and as such entrusting
investigation to CBI is unwarranted.
v. In support of his case, he placed reliance on the judgments of the
Apex Court in State of Karnataka vs. Arun Kumar Aggarwal 7,
(2000) 1 SCC 210
CBI vs. State of Rajasthan 8 , Common Cause, a registered
Society vs. UOI 9 , Adinarayana Reddy Ramdas Motor
Transport Ltd. vs. Taadi Adinaryana Reddy 10 and Secretary
Minor Irrigation and Rural Engineering Services, U.P. vs.
Sahngoo Ram Arya 11 , contended that when neither a specific
crime nor persons involved in the crime or place of crime is
known, this Court merely on the basis of suspicion, this Court
cannot order a CBI enquiry. He further stated that this Court under
Article 226 of Constitution of India has power to entrust
investigation to CBI and that power has to be exercised very
sparingly.
vi. An allegation has been made that Ledger Folio Numbers are not
disclosed; but it is not stated by the OL that the registered contract
number of each transaction has been mentioned in the statement of
affairs with these contract numbers, each transaction can be
verified both from the files as also the computers.
vii. In the report of the Chartered Accountant, it is stated that several
relevant files were not available, but the Respondent's
AIR 2001 SC 668
1999 (6) SCC 667
AIR 1997 SC 2189
2002 5 SCC 521
representative has complied with full particulars of 28 major
debtors and was in the process of completing the list of 51 major
debtors when the OL has sought reference of the matter to C.B.I.
41. Respondent No.2 has also filed his counter contending as
follows:-
i. He has no Knowledge about the proceedings pending in this
Court.
ii. He has resigned from the Board of Directors of the Company
on 09.04.1997 and when his resignation was accepted he was
not in possession of any records of the Company.
iii. He is unable to answer most of the allegations contained in the
application filed by the OL, seeking investigation by CBI or
CBCID etc., as he was totally in the dark about the matter.
iv. Unless his innocence is established in the trial to be conducted
on the main application filed by the OL under Section 454 of
the Companies Act, any investigation by the CBI or CBCID
would unfairly prejudice him and his name and reputation
would be tarnished.
ANALYSIS AND FINDING OF THE COURT:-
42. In view of the above facts and Sections and Rules of the
Act, points that arise for consideration of this Court are:-
1. Whether an Auditor or Auditors should be appointed to investigate
misfeasance, misapplication of funds, or breach of trust by the Ex-
Directors with reference to Sections 542 and 543 of the Act?
2. Whether there exists a prima facie case for referring the matter to
an external criminal investigative agency such as the CBI, CBCID, or
Economic Offences Wing for inquiry into the financial irregularities
alleged against the ex-directors?
Point No.1:
43. In the light of the above facts, it is apt to discuss the relevant
sections of the Act and the Rules which are extracted below:-
Section 457(1) (e) of the Act: To do all such other things as may be
necessary for winding up the affairs of the company and distributing its
assets.
Rule 9 of the Rules:- 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.
Section 542:- 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 Tribunal, 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 Tribunalmay 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 Tribunal 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 Tribunal 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 Tribunal 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 fiftythousand 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.
Section 543 of the Act:- Power of Tribunal to assess damages
against delinquent Directors etc.
(1) If in the course of winding up of a company, it appears that any person
who has taken part in the promotion or formation of the company, or any
past or present director, manager, liquidator or officer of the company - (a)
has misapplied, or retained, or become liable or accountable for, any money
or property of the company ; or
(b) has been guilty of any misfeasance or breach of trust in relation to the
company, the Tribunal may, on the application of the Official Liquidator, or
the liquidator, or of any creditor or contributory, made within the time
specified in that behalf in sub-section(2), examine into the conduct of the
person, director, manager, liquidator or officer aforesaid, and compel him to
repay or restore the money or property or any part thereof respectively, with
interest at such rate as the Tribunal thinks just, or to contribute such sum to
the assets of the company by way of compensation in respect of the
misapplication, retainer, misfeasance or breach of trust, as the Tribunal
thinks just.
(2) An application under sub-section (1) shall be made within five years
from the date of the order for winding up, or of the first appointment of the
liquidator in the winding up, or of the misapplication, retainer, misfeasance
or breach of trust as the case may be, whichever is longer.
(3) This section shall apply notwithstanding that the matter is one for which
the person concerned may be criminally liable.
44. The OL sought to appoint an auditor to investigate if any
misfeasance, misapplication of Funds or breach of trust by Ex-
Directors have been made or not with reference to Section 542 and
543 of the Act, and other consequential directions. Perusal of the
record would show that such relief is not warranted in the present case
as the material placed on record does not disclose any prima facie
case of misfeasance, fraud, or breach of trust attributable to the Ex-
Directors so as to necessitate an Auditor or Central Bureau of
Investigation. It is to be noted that the OL has been in possession of
the company's premises and records since 1998, yet not have traced
any vital documents which were subsequently recovered by a
representative of the respondents, thereby casting doubt on the
diligence exercised by the OL. Appointment of Auditor under such
circumstances must be founded on clear suspicion supported by
specific financial irregularities, and not merely on general
dissatisfaction with the conduct of past Directors. In the above
circumstances this Court is of the view that there exists no necessity
for appointing an auditor at this stage. Therefore, this point is answered
accordingly.
Point No.2:
45. With regard to entrustment of investigation, CBI, CBCID,
or Economic Offences Wing to investigate/to inquire into the financial
irregularities alleged against the Ex-Directors, it is relevant to discuss
a judgment of Full Bench of the Supreme Court in Common Cause, a
registered society (supra), held as follows:-
"174. The other direction, namely, the direction to the C.B.I. to investigate
"any other offence" is wholly erroneous and cannot be sustained. Obviously,
direction for investigation can be given only if an offence is, prima facie,
found to have been committed or a person's involvement is prima facie
established, but a direction to the C.B.I. to investigate whether any person
has committed an offence or not cannot be legally given. Such a direction
would be contrary to the concept and philosophy of "LIFE" and
"LIBERTY" guaranteed to a person under Article 21 of the Constitution".
46. A Division Bench of the Apex Court in Vinay Aggarwal
(supra) held as follows:-
"13. The High Courts should direct for CBI investigation only in cases
where material prima facie discloses something calling for an
investigation by CBI and it should not be done in a routine manner or
on the basis of some vague allegations. The "ifs" and "buts" without
any definite conclusion are not sufficient to put an agency like CBI into
motion ( 12Minor Irrigation & Rural Engg. Services, U.P. v. Sahngoo
Ram Arya,). After going through the records of the case, we are of the
view that the present case is not the one where CBI investigation ought
to have been directed by the High Court."
47. This Court in Mr.B.Sailesh Saxena vs. Union of India13
had an occasion to consider the circumstances under which
investigation can be transferred to the Central Bureau of Investigation.
This Court referring to several landmark judgments of the Apex
Court, held that entrustment of investigation to the CBI is not a matter
of routine, but an extraordinary power to be exercised sparingly and
only in rare and exceptional cases. The relevant paragraph is extracted
as follows:
"31. No doubt the Magistrate cannot order investigation by the CBI vide
CBI vs. State of Rajasthan and another (Supra), but this Court or the High
Court has power under Article 136 or Article 226 to order investigation by
(2002) 5 SCC 521]
the CBI. That, however should be done only in some rare and exceptional
case, otherwise, the CBI would be flooded with a large number of cases and
would find it impossible to properly investigate all of them.
xxxx
34. There is no dispute that this Court under Article 226 of Constitution is
having power to entrust the investigation to any independent agency
including CBI. The said principle was also laid down by the Apex Court in
the judgments referred supra. As held by the Hon'ble Apex Court in Arab
Ranjan Goswami's Case that transfer of investigation to CBI is not a matter
of routine, in extraordinary circumstances by using powers of this Court
sparingly in exceptional circumstances, the investigation has to be entrusted
to CBI."
48. Further this Court in Sailesh Saxena (supra) has referred to
a Three-Judge Bench of the Apex Court in Prof.K.V.Rajendran V.
Superintendent of Police, CBCID South Zone, Chennai 14, wherein
it was stated that :
"CBI investigation could be ordered, but such power must be exercised in
rare and exceptional cases where the Court finds it necessary in order to do
justice between the parties and to instill confidence in the public mind, or
where the investigation by the State police lacks credibility and it is
necessary for having "a fair, honest and complete investigation and
particularly when it is imperative to retain public confidence in the impartial
working of the State agencies". It has further observed that where the
investigation was already completed and charge sheet was filed, ordinarily
superior Courts should not reopen the investigation and leave it to the Court
concerned, to proceed with the matter in accordance with law. Under no
(2013) 12 SCC 480
circumstances, should the Court make any expression of its opinion on merit
relating to any accusation against any individual"
49. In the light of the aforesaid precedents, it is clear that
reference of any matter to the CBI on or other external agencies is not
to be made as a matter of course, but only where there exists a clear
prima facie disclosure of commission of a cognizable offence of
serious nature, or where the investigation by ordinary means would
lack credibility. In the present case, the OL seeks a direction for
investigation by CBI/CBCID enquiry essentially on the ground that
the Ex-Directors have failed to cooperate and that several files and
records are not traceable. However, mere non-availability of records,
discrepancies in the statement of affairs, or want of diligence by the
ex-management, without a prima facie finding of criminality, cannot
by itself justify the extraordinary step of entrusting investigation to the
CBI. As noticed by the Supreme Court in Common Cause (supra)
and reiterated in Vinay Aggarwal (supra) as well as by this Court
in B. Sailesh Saxena (supra), entrustment of investigation to CBI
arises only when specific acts constituting an offence are prima facie
made out. In the absence of such concrete material, entrusting
investigation to the CBI on the basis of suspicion or irregularities, is
impermissible in law.
50. In the present case, there is no supporting evidentiary
material pointing to any wilful fraud, misappropriation, or dishonest
conduct on the part of the Ex-Directors that would warrant
entrustment of investigation to CBI. The allegations are general in
nature and do not reflect such gravity as to necessitate CBI to
investigate in the circumstances of the case.
51. In light of the aforesaid principles, this Court is of the
considered view that in the absence of prima facie case indicating
misfeasance or dishonest conduct, this Court cannot exercise its
jurisdiction to entrustment investigation to CBI for investigation into
the financial irregularities etc., committed by the Ex-Directors as
alleged, and also to appoint Auditor. Therefore, the OL is not entitled
for any relief much less the relief sought in the present company
application. Thus, this application is liable to be dismissed and is
dismissed.
COMPA No. 477 OF 2010
52. OL filed COMPA No.477 of 2010 against said M.C. Jain
i.e. respondent herein, under sub section (5) and (5A) of Section 454
of the Act read with Rule 125 and 132 of the Rules, to punish the
respondent under Section 454 for making false statements in the
Statement of affairs filed by him, with the following contentions:-
i. In view of the deficiencies in the statement of affairs, earlier he
has filed COMPA No.512/2001 seeking impleadment of Sri
M.C. Jain as respondent No.10 in COMPA No.611 of 1998
under Section 454 of the Act.
ii. Vide order dated 05.04.2000, this Court allowed the said
application impleading Sri. M.C. Jain in COMPA No.611 of
1998. Aggrieved by the said order, he preferred an appeal vide
O.S.A.No.31 and 2002. Vide an order dated 18.03.2006,
Division Bench allowed the said appeal observing that:
".......Only other stage when the court is empowered to add any
other person to array of the accused is after reaching evidence
collection when powers under Section 319 of the Code can be
invoked. We are unable to find any other power for the Sessions
Court to permit addition of new person or persons to the array of
the accused. Of course, it is not necessary for the Court to wait
until the entire evidence is collected for exercising the said
power.
For these reasons, we allow the appeal, set aside the order
of the Company Court."
iii. In his report, he stated that during the hearing of the original
complaint under Section 454 in COMPA No.611 of 1998 filed
against the other ex-directors, the Company Court vide docket
orders dated 20.04.2010 and 03.06.2010 directed him to file
separate application against the respondent herein.
iv. Though the respondent herein has filed statement of affairs, the
same is defective on various counts as he could not realize any
major amounts reflected in it due to counter claims and claims
of the satisfaction by the respective debtors.
v. The respondent herein was not convicted in the original
proceedings initiated by the OL under Section 454 of the
Companies Act, 1956 in COMPA No.512/2001 in COMPA
No.611/1998 at no point of time.
vi. He states that basing on the false information submitted in the
statement of affairs, he has initiated proceedings under Section
543 of the Companies Act, 1956 vide CA No.673/2003 to pay a
sum of Rs. 56, 44, 49, 712-92 paise to the account of the
company by the Ex-Directors including the respondent herein
for their misappropriation and mismanagement of the affairs of
the company. Therefore, in the event of this Court considering
the present plea of respondent herein for discharge from the
proceedings initiated by them, the respondent will take the said
shelter in COMPA No.673/2003 to evade compliance of the
responsibility of Ex-director in accounting for the
misappropriation of the funds of the company.
53. The respondent herein filed counter contending as follows:-
i. He was inducted into Board of the Company only on
09.04.1997 i.e. one year before the winding up of the company
on 19.08.1998 and that the other Director's arrayed as
respondents in COMPA No.611 of 1998 were active while
performing their duties as the directors of the company
ii. Earlier the OL filed COMPA No.512 of 2001 to implead him as
Respondent No.10 in COMPA No.611 of 1998.
iii. OL let in entire evidence in COMPA No.611 of 1998 and he
was also examined under Section 313 Cr.P.C. after closing the
evidence and no application was ever filed by OL under
Section 319 of Cr.P.C.
iv. Without any fresh information or without any further evidence
in the trial conducted in COMPA No.611 of 2008, a
fresh/present application filed by the OL is clear abuse of the
process of law. Therefore, initiation of present prosecution is
clearly barred under the law of limitation as contemplated under
Section 468 of Cr.P.C which clearly specifies that for the
offence punishable up to 3 years, the limitation for taking
cognizance is 3 years from the date of cognizance of the
offence. The OL herein by invoking the provisions under
Section 543 of the Act, alleging misfeasance, malfeasance and
negligence against the Ex-Directors including this respondent is
barred under the law of limitation and due to the above
sequence of events which happened more than 3 years prior to
the present complaint any claim by the OL with regard to
continuance of the offence would be a clear abuse of process of
law. Therefore, this application liable to be dismissed.
ANALYSIS AND FINDING OF THE COURT:-
54. In the light of the aforesaid facts of the case, the following
points arise for consideration of this Court:-
1. Whether the accused can be held liable under Section 454(5) and
(5A) of the Act, for submitting a defective and misleading
statement of affairs according to the OL?
2. Whether the fresh application/present application filed by the OL
is barred by limitation under Section 468 CrPC?
3. Whether filing a second application under Section 454 violates
Section 300 Cr.PC or amounts to an abuse of process,
considering earlier proceedings i.e. COMPA No. 611/1998 and
COMPA No. 156/2000?
Point No.1:
55. Perusal of the record would reveal that the winding up order
was passed on 19.08.1998. On 19.02.1999 the accused filed statement
of affairs claiming as a Director of the Company. This application is
filed to punish the respondent herein for making false statements in
the statement of affairs filed by him.
56. It is relevant to note that the High Court of Kerala
in Official Liquidator v. K. Indira Kartha 15, held that in order to
prosecute the accused under section 454 (5) and 5A of the Act, it must
prove that the accused has committed default without reasonable
excuse.
57. The paragraph which is relevant is extracted below:-
"8. ..............The important ingredient of an offence punishable
under sub-s.(5) of Section 454 is that the accused has committed the
default without reasonable excuse. Unless, on the evidence available,
the court is in a position to come to this conclusion, the accused
cannot be convicted. The question, whether in a prosecution
under Section 454(5) of the Act, the burden of proving that the
accused had no reasonable excuse for making the default lies upon the
1983) 54 Comp. Cases 644
prosecution or not, came up for consideration before a Full Bench of
the Delhi High Court in re [1974] 44 Comp Cas 499 Security &
Finance (P.) Ltd., After an elaborate consideration of the relevant
provisions in the Act and similar provisions in the English Act, known
as the Companies (Winding up) Act, 1890, the Full Bench, held that in
a prosecution under Section 454(5) and (5A) of the Act, the burden of
proving that the accused had no reasonable excuse for making the
default is on the prosecution in the first instance."
58. It is relevant to note that the High Court of Madras in
P.V.R.S. Manikumar V. Official Liquidator 16 dealt with the
requirements to prove the ingredients of Section 454 (5) and (5A) of
the Act and 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 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.
XXXX
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 all circumstances of the case and to arrive at a conclusion as
to whether the accused has acted honestly and reasonably and the default
[(2013) SCC OnLine Mad 320]
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."
59. In the present case, there is no allegation, much less proof,
that the accused has made any false representation or acted
fraudulently in preparing or submitting the statement of affairs. The
defects pointed out by the Official Liquidator such as incomplete
debtor details or unavailable supporting documents are consistent with
the explanation that the accused has relied upon the company's
existing records.
60. OL, in his report, dated 26.03.2011 has stated that during
the hearing of the original complaint filed under Section 454 in
COMPA No.611 of 1998 against the other Ex-Directors, vide docket
orders dated 20.04.2010 and 03.06.2010, this Court directed him to
file separate application against Sri M.C. Jain. But on perusal of the
docket on the said dates, nowhere it is mentioned.
61. No evidence has been adduced to show that the respondent
deliberately suppressed facts, fabricated data, or concealed material
transactions. In the Present case, the OL has to prove that the accused
has made false statements in the statement of affairs filed by him in
order to make him liable under section 454 (5) and (5A) of the Act,
beyond reasonable excuse, but he failed to produce sufficient evidence
for the same. Therefore, the OL has not made out any case to punish
the respondent herein. This point is answered accordingly.
Point No.2:
62. Whether the fresh application/present application filed by
the OL is barred by limitation under Section 468 CrPC?
Section 468 of the Act:-Bar to taking cognizance after lapse of the
period of limitation.
(1) Except as otherwise provided elsewhere in this Code, no Court shall take
cognizance of an offence of the category specified in sub-section (2), after
the expiry of the period of limitation.
(2) The period of limitation shall be
(a) six months, if the offence is punishable with fine only;
(b)one year, if the offence is punishable with imprisonment for a term not
exceeding one year;
(c) three years, if the offence is punishable with imprisonment for a
term exceeding one year but not exceeding three years.
(3) For the purposes of this section, the period of limitation, in relation to
offences which may be tried together, shall be determined with reference to
the offence which is punishable with the more severe punishment or, as the
case may be, the most severe punishment.
Section 473 of the Act:- Extension of period of limitation in certain
cases.--Notwithstanding anything contained in the foregoing provisions of
this Chapter, any Court may take cognizance of an offence after the expiry
of the period of limitation, if it is satisfied on the facts and in the
circumstances of the case that the delay has been properly explained or that
it is necessary so to do in the interests of justice.
63. In the present case, the statement of affairs was filed on
19.02.1999. The prosecution, initiated in the year June 2010 much
later, exceeds the three-year limitation period provided as per Section
468 of the CrPC. The delay of nearly 11 years has not been properly
explained by the OL. The continuing nature under Section 454 (5) and
(5A) ends once the obligation is duly performed.
Point No.3:
64. With regard to whether filing a second application under
Section 454(5) and (5A) of the Act, violates section 300 CrPC or
amounts to an abuse of process, considering earlier proceedings vide
COMPA No. 156 of 2000 in COMPA No. 611 of 1998. This COMPA
No.156 of 2000 is filed to initiate necessary penal action as provided
under section 629 of the Act, against Sri.M.C Jain an Ex-Director of
the Company having made false statements in the statement of affairs.
The said application was disposed on 27.06.2002. It is pertinent to
note that Section 300 of CrPC mandates that a person once convicted
or acquitted not to be tried for the same offence. At the cost of
repetition, it is necessary to note that the OL has earlier filed COMPA
No. 512 of 2001 seeking permission of this Court to implead the
Accused as Respondent No.10 in Company Application No.611 of
1998 by invoking Section 454 (5) and (5A) of the Act. Further, this
Court vide order dated 05.04.2000 has implead the Accused as
Respondent No.10. Aggrieved by the said order, the Accused has
preferred an appeal vide OSA No.31 of 2002 in COMPA No.611 of
1998 and after hearing the same, the Division Bench of this Court has
allowed the said appeal on 18.03.2006 placing reliance on the
principle laid down by the Apex Court in Kishun Singh vs. State of
Bihar 17
65. The above appeal filed by Mr. M. C. Jain was allowed by
Divisional Bench of this Court wherein it was held that it is after the
reaching of the evidence collection, the person can be impleaded.
66. COMPA No.477 of 2010 is filed with the similar reliefs to
that of COMPA No.156 of 2000 filed by OL against Accused herein,
1993 2 SCC 16
which was disposed of vide order dated 27.06.2002. Therefore, filing
the present application is not maintainable in the present case.
Accordingly Point No.3 is answered.
67. Perusal of the record would reveal that the statement of
affairs was filed on 19.02.1999, and after a delay of 11 years, the
present application is filed alleging submission of a false statement of
affairs. Such prosecution is clearly barred by limitation under Section
468 of the CrPC. The OL failed to explain the delay properly to satisfy
the Court for granting the relief. The application is devoid of any
merit and the complaint filed by the OL is barred as per Section 468 of
the CrPC. Therefore, this Company Application (COMPA No.477 of
2010) is liable to be dismissed and is dismissed.
68. In the light of the aforesaid discussion, these Company
Applications are dismissed.
As a sequel, the miscellaneous petitions, if any, pending in
these company applications, shall stand closed.
________________________
JUSTICE K. LAKSHMAN
Date:11.09.2025.
Vvr
