OJCR/1/2001 1/21 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL CASE No. 1 of 2001 In COMPANY PETITION No. 305 of 1999 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ Sd/- ====================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? YES 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ====================================== O. L. OF JUPITER INDUSTRIES LTD. - Complainant Versus MANSUKHBHAI RAGHAVJI JOSHI & 6 - Accused ====================================== Appearance : MR HIREN M MODI for Complainant. MR HARMISH K SHAH for Accused 1 & 6. MR SN SOPARKAR, SENIOR ADVOCATE WITH MR SS PANESAR for Accused Nos. 2 – 4. DELETED Accused : 5, NOTICE UNSERVED for Accused No. 7. ====================================== OJCR/1/2001 2/21 JUDGMENT CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 29/02/2008 ORAL JUDGMENT 1. The Official Liquidator has filed this criminal case under Section 454 of the Companies Act, 1956 requesting this Court to take cognizance of the default committed by the accused persons under Section 454 (5) of the Companies Act, 1956 and to issue process against them and to try and punish them in accordance with the provisions of law. The Official Liquidator has also prayed for the direction to the accused persons to submit forthwith the statement of affairs to him as on the date of winding up order dated 17.04.2000. 2. This Court has issued process on 17.01.2001. On 10.08.2001, this Court has passed an order on the basis of the two sets of documents tendered by Shri S.S. Panesar, learned advocate appearing for accused Nos.2 to 4 and directed the office to issue process against Mr. Ramesh Chhabildas Varia and Mr. Ramjibhai Devjibhai Vachhani, accused Nos. 6 & 7 herein. 3. On 24.11.2005, this Court has passed further order on OJCR/1/2001 3/21 JUDGMENT the basis of the affidavits filed by accused Nos.2 to 4 directing them to file further affidavits along with necessary evidence including copy of Form No.32, acknowledgment given by the Registrar of Companies and such other evidence which may prove that accused Nos.2 to 4 had tendered their resignation. The Court has also issued Bailable Warrant in the sum of Rs.10,000/- on the accused No.1 and direction was issued to the Superintendent of Police, Porbandar for execution of the Warrant and to file service report before the Court. The Court thereafter passed further order on 24.03.2006 taking note of the fact that accused No.5 has expired on 21.10.2002. Xerox copy of the death certificate issued by the Municipal Corporation of Greater Mumbai was taken on record. On the basis of this death certificate, criminal proceedings against accused No.5 stood abated. 4. On 18.04.2006, Mr. Ramesh Chhabildas Varia and Mr. Ramjibhai Devjibhai Vachhani were joined as accused Nos. 6 & 7 and further notices were issued to them to secure their presence before the Court. On 06.07.2006, on behalf of accused Nos. 2,3 & 4, certified copy of Form No.32 was placed on record. Mr. Harmish K. Shah, OJCR/1/2001 4/21 JUDGMENT learned advocate has filed his appearance on behalf of accused No. 1 & 6. However, notice could not be served on accused No.7 and hence, Bailable Warrant in the sum of Rs.5,000/- was issued against accused No. 7. On 05.02.2007, a statement was made by Mr. Shah that according to their knowledge, accused Nos.2 to 4 have destroyed the relevant records and books of accounts. Learned advocate Mr. Panesar appearing for accused Nos.2 to 4 has submitted before the Court that accused Nos.2 to 4 will be filing statement of affairs on the basis of the records available and for that purpose, time for 4 weeks was prayed for. On 05.03.2007, this Court has passed further order observing therein that in view of the order dated 05.02.2007, statement of affairs was not filed. Further time of 2 weeks was prayed for and the Court has granted two weeks time by observing that by granting two weeks time, it may not be construed that the Court has extended time in favour of the accused to file statement of affairs. Despite this assurance, statement of affairs is not filed till this date. 5. Since the matter is very old, the same is taken up for hearing. OJCR/1/2001 5/21 JUDGMENT 6. Heard Mr. Hiren Modi, learned advocate appearing for the Official Liquidator, Mr. S.N. Soparkar, learned Senior advocate with Mr. S.S. Panesar for accused Nos.2 to 4, Mr. Harmish K. Shah, learned advocate appearing for accused Nos.1 & 6. Since accused No. 5 had expired, proceedings against him stood abated. No notice could be served on the accused No. 7 till this date who is stated to have been in U.S.A. However, his address has not come on the record of this complaint. 7. Mr. S. N. Soparkar, learned Senior advocate has submitted that accused Nos. 2 to 4 are not liable to file the statement of affairs as they were not the Directors of the Company on the relevant date. He has specifically invited the Court's attention to the affidavits filed by all the three accused and the relevant documents attached therewith. As far as accused No.2 is concerned, he has tendered his resignation from the Board of Directors of the Company vide letter dated 31.12.1996 and the said letter was duly received by the Company on 01.01.1997. In the meantime, Mr. Ramesh Chhabildas Varia and Mr. Ramjibhai Devjibhai Vachhani, accused Nos. 6 & 7 herein vide letter dated 01.01.1997 gave consent for OJCR/1/2001 6/21 JUDGMENT their appointment as Managing Director and Joint Managing Director respectively on the Board of Directors of the Company. Accordingly, the said Company filed Form No. 32 for appointment of these two persons as Directors and notifying resignation of the accused No.2 and the said Form No. 32 has been lodged with the Registrar of Companies, Ahmedabad on 26.05.1998. He has further submitted that due to inadvertence, the management of the Company though prepared another Form No. 32 dated 02.01.1997 for resignation of accused No.2, filed the same with the Registrar of Companies, Ahmedabad on 10.04.2000. Based on these facts, Mr. Soparkar has submitted that after acceptance of the resignation of the accused No.2 on 01.01.1997, accused No.2 seized to be the Director of the Company. Accordingly, accused No.1 had no books of accounts in his possession, custody or power and hence, accused No.2 is not responsible for the management and affairs of the Company in liquidation. He has further submitted that for any inaction or negligence on the part of the continuing Directors of the Company, accused No.2 cannot be saddled with any such liability. Even otherwise, in absence of any record or OJCR/1/2001 7/21 JUDGMENT material with the accused No.2, it was not possible for him to furnish any record to the Official Liquidator. 8. With regard to accused No.3, more or less same submissions were made by Mr. Soparkar. Accused No.3 has also filed affidavit on 18.03.2001. It is stated therein that he has tendered his resignation on 30.06.1996 and the same was duly received by the Company on 30.06.1996. The Company vide letter dated 07.07.1996 accepted the resignation of the accused No.3 with effect from 30.06.1996. Due to inadvertence of the management of the Company, though Form No. 32 was prepared on 01.07.1996, the same was filed with the Registrar of Companies, Ahmedabad on 06.04.2000. Mr. Soparkar has further submitted that accused No.3 has given reply to the Official Liquidator immediately upon receipt of the notices under Section 454 of the Act. His reply dated 17.07.2000 and 10.08.2000 are placed on record of this complaint. 9. Similarly, accused No. 4 has also filed affidavit before this Court on 13.07.2001. Mr. Soparkar has also canvassed same submissions for accused No. 4. Accused No.4 has tendered his resignation from the Board of OJCR/1/2001 8/21 JUDGMENT Directors of the Company vide letter dated 31.12.1996 which was duly accepted by the Company. The Company has filed Form No. 32 notifying the resignation of the accused No. 4. He did not have any books of accounts with him and hence, he is not liable to furnish the statement of affairs. 10.In respect of all the three accused, Mr. Soparkar has submitted that provisions of Section 454 are very clear. Sub-section (2) of Section 454 states that statement shall be submitted and verified by one or more of the persons who are at the relevant date the Directors of the Company. The relevant date is defined in sub-section (8) of Section 454 which says that the expression “the relevant date” means in a case where 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. Here in the present case, the winding up order was passed on 17.04.2000 and before that all the three accused have tendered their resignation. Necessary intimations were sent to the Registrar of Companies in the Form No. 32 and this fact has not been disputed even by the Official Liquidator. OJCR/1/2001 9/21 JUDGMENT He has further submitted that the Official Liquidator has not obtained any direction from this Court to submit and verify the statement from the persons referred to in sub- section (1) of Section 454 of the Act and hence, even on this ground, they are not liable to file statement of affairs. Mr. Soparkar has further submitted that it is true that statement was made before this Court on behalf of accused Nos.2 to 4 that they would file statement of affairs, on the basis of the record that may be made available. Precisely for this reason, the Chartered Accountant of the accused Nos. 2 to 4 wrote a letter to the Official Liquidator on 12.02.2007 requesting him to provide inspection of all the required record of the case for submitting the statement of affairs in the matter. The letter was written without prejudice to their rights and contentions raised in the matter. A reminder was also sent to the Official Liquidator on 28.02.2007. Pursuant to this, the Official Liquidator sent his reply on 02.03.2007 stating therein that the Ex-Directors of the Company have not handed over books of account and other records of the Company to the Official Liquidator and hence, the Official Liquidator is not in possession of the records relevant for the purpose of preparation of OJCR/1/2001 10/21 JUDGMENT statement of affairs. Since the records of the Company in liquidation were not available with the Official Liquidator, it was not possible for them to file statement of affairs though it was agreed before this Court. Mr. Soparkar has, therefore, submitted that the said statement could not come in their way to plead before this Court that they are not liable to file statement of affairs. 11.As far as accused No.1 is concerned, he has also filed his affidavit-in-reply on 10.01.2006 wherein it is stated that he was the Executive Director of the Company and since he was close relative of the main Director, he was invited on the Board. He was cousin brother of the accused No.2, main promoter of the Company and since he was NRI, he requested accused No.1 to sign on his behalf and he was appointed as Executive Director of the Company. Despite his resignation, the accused No.2 was in charge of the affairs of the Company. He has committed fraud with Creditors and workers of the Company and he was apprehending the litigation and only because of that, he filed Form No. 32 with the Registrar of Companies. It is further stated that the accused No.2 was active in the OJCR/1/2001 11/21 JUDGMENT Company even after 31.12.1996. He was taking care of business and finance. He was signing cheques even after 31.12.1996. BIFR vide order dated 09.12.1997 held that it did not recognize SCIL as the Promoter or Co-promoter of the Sick Company and directed that it should be ousted from the Management if there was an evidence that they were managing the Unit. Even Bank of India disapproved such a change and stated that Bank of India and other Banks have no faith in the present Management as it has failed to settle the One Time Settlement account of the Banks and also pleaded that action under Section 24 of the SICA be initiated against the accused No.1. It was further stated that scheme sanctioned by BIFR on 02.07.1996 has failed due to its non-implementation by the Promoters. Because of increasing complexities and apprehending litigations, the accused No.2 filed Form No. 32 with an object to shirk from the liabilities and responsibilities. ICICI vide its letter dated 03.02.2000 did not permit the accused No.2 to transfer responsibility of the Company. Lastly, it is stated that the accused No.2 has committed fraud with the Banks, suppliers, employees and workers of the Company. He has deducted provident fund from workers OJCR/1/2001 12/21 JUDGMENT wages and it was withdrawn by him and transferred to his personal account. Since the Company was taken into liquidation, he has also destroyed all books of accounts and important documents so that the Official Liquidator could not take possession. He has, therefore, submitted that since the books of accounts were destroyed by the accused No.2, he was not in a position to submit the statement of affairs. He was not aware about the financial position of the Company and hence, he could not submit the statement of affairs of the Company. 12.As far as accused No. 6 is concerned, Mr. Harmish K. Shah has submitted that on the basis of the affidavit filed by the accused No.6, it is clearly established that only the accused No.2 was in charge of the business of the Company even after he tendered his resignation. The appointment of the accused No.6 as Managing Director was not held to be valid. More or less same submissions were made by the accused No.6 which are made by accused No. 1 in his affidavit. He has also expressed his inability to file statement of affairs in absence of the books of accounts which are alleged to have been destroyed by accused No.2. OJCR/1/2001 13/21 JUDGMENT 13.In support of his submission that accused Nos.1 & 6 could not file statement of affairs, Mr. Shah relied on the decision of Delhi High Court in the case of OFFICIAL LIQUIDATOR, R.S. MOTORS P. LTD. V/S. JAGJIT SINGH SAWHNEY AND ANOTHER, 44 COMPANY CASES 381 wherein it is held that any excuse would reasonably suggest that the accused could not comply with the provisions of law is a “reasonable excuse” within the meaning of Section 454 (5). If the Books of the Company were in a state of disorder and a number of records and files were with the Police, it would be most difficult for the accused persons to prepare a statement of affairs. The law does not impose an impossible liability on the Directors. What one has to see in such a case is whether a reasonable person placed in the same situation as the Directors, would be able to complete the statement of affairs without reference to the books with the Police. On facts, the Court held that the respondents had a “reasonable excuse” for not submitting the statement of affairs within the time prescribed by Section 454 (3) and the complaint failed. 14.Mr. Shah further relied on the decision of the Punjab & OJCR/1/2001 14/21 JUDGMENT Haryana High Court in the case of OFFICIAL LIQUIDATOR V/S. SURJIT SINGH AND OTHERS, 94 COMPANY CASES 679 wherein it is held that the respondents were not in possession of any of the particulars referred to in sub-section (1) of Section 454, regarding which the statement of affairs had to be filed. The assets of the Company, cash balance in hand and in the Bank, debts and liabilities, names, residences and occupations of the Creditors of Secured and Unsecured debt and debts due to the Company along with the names, residences and occupations of the persons from whom they were due and the amount likely to be realized could only be furnished by a person who had the knowledge at the relevant date. The winding up order was passed on 01.07.1988 and on the relevant date, the respondents were not in charge of or in any way concerned with the affairs of the Company. Under the circumstances, the respondents' failure to file the statement was not malafide and they had a reasonable excuse. Therefore, they were not, therefore, liable to be punished. 15.Mr. Shah has further relied on the decision of the Punjab OJCR/1/2001 15/21 JUDGMENT & Haryana High Court in the case of HARYANA DRUGS AND PHARMACEUTICALS LIMITED (IN LIQUIDATION) V/S. K. SINGHAL AND OTHERS, 104 COMPANY CASES 338 wherein it is held that a perusal of sub-sections (5) and (5A) of Section 454 of the Companies Act, 1956, shows that while the Directors are under a duty to file a statement of affairs before the Official Liquidator where the Company is directed to be wound up, still, if any person, without reasonable excuse, makes a default, he can be punished with imprisonment for a term which may extend to 2 years or with fine which may extend to Rs. 100/- for every day during which the default continues or with both. The essential ingredient of sub-section (5) of Section 454 of the Act is that if there is a reasonable excuse, in that event, the persons concerned cannot be held guilty. Any excuse that would reasonably suggest that the accused could not comply with the provisions of law is a “reasonable excuse”. The Court, therefore, while allowing the petition held that it was abundantly clear that only respondents Nos. 1 and 5 who were proclaimed offenders were held liable for handing over the assets, property, books of account and records of the Company OJCR/1/2001 16/21 JUDGMENT to the Official Liquidator. The other respondents were not liable as there was evidence on the record indicating that they were not in possession of the assets, account books and records of the Company. Therefore, there was reasonable excuse for these respondents in not furnishing the statement of affairs, and they were to be acquitted. 16.Based on the aforesaid judgments, Mr. Shah has submitted that accused Nos. 1 & 6 are liable to be acquitted as they are prevented by reasonable cause from filing the statement of affairs and the reasonable excuse is that the books of accounts and other things have been destroyed by the accused No.2 who was in charge of the affairs of the Company even after tendering his so-called resignation. 17.Mr. Hiren Modi, learned advocate appearing for the Official Liquidator, on the other hand, has submitted that there is gross delay on the part of the accused. Not only delay, but they have failed to file statement of affairs. Alleged ground of non-availability of books of accounts could not be construed as reasonable excuse as the accused have not delivered the possession of the books OJCR/1/2001 17/21 JUDGMENT of accounts of the Company in liquidation at the time when the Official Liquidator has taken charge of the affairs of the Company in liquidation. He has further submitted that specific allegation is made against the accused No. 2 that he has willfully destroyed the books of accounts so that no proceedings can be initiated against him. Even otherwise, the accused could have obtained relevant details from the office of the Registrar of Companies and could have prepared statement of affairs of the Company in liquidation. Simply because accused Nos. 2, 3 & 4 have submitted their resignation and filed Form No. 32 with the Registrar of Companies before the winding up order is passed, they could not be absolved from their liability of filing the statement of affairs. Similarly, accused Nos. 1 & 6 are the Directors on the date of the winding up order and in any case, they cannot escape from their liabilities of filing the statement of affairs. Accused No. 7 has left the country and he is permanently residing in U.S.A. and hence, summons could not be served on him. However, his liability to file statement of affairs would not come to an end and the Court can still hold the accused No. 7 guilty of non-filing of the statement of affairs. He has, OJCR/1/2001 18/21 JUDGMENT therefore, submitted that all the accused have committed an offence under Section 454 (5) of the Companies Act, 1956 and they are accordingly be punished under the provisions of the Act. 18.After having heard learned advocates appearing for the respective parties and after having gone through the memo of complaint, documents attached therewith as well as various affidavits filed by the accused and supporting evidence produced before the Court and after having considered the statutory provisions relating to the liability of persons to file statement of affairs of the Company in liquidation and the authorities cited before the Court, the Court is of the view that the case of all seven accused stands on different footing. During the pendency of the complaint, accused No. 5 had expired and hence, proceedings qua him stand abated. As far as accused Nos. 3 & 4 are concerned, admittedly they have tendered their resignation much earlier. Forms No. 32 were also filed in their cases with the Registrar of Companies before the Company went into liquidation. No grievance is raised by other two accused, namely, accused Nos. 1 & 6 against accused Nos. 3 & 4. They OJCR/1/2001 19/21 JUDGMENT are, therefore, squarely covered by the provisions contained in Section 454 (2) of the Companies Act, 1956 and they were not the Directors of the Company on the relevant date. They are wrongly impleaded as accused in the complaint and they are, therefore, required to be exonerated. 19.As far as accused No. 2 is concerned, it is true that he has tendered resignation and Form No. 32 was also filed with the Registrar of Companies before the winding up order is passed and hence, technically, he is not liable to file statement of affairs. However, record shows that even after tendering his resignation, he continued to take part in the management of the Company. Even other two Continuing Directors, namely, accused Nos.1 & 6 have made very serious allegations against him and stated before this Court on oath that he has destroyed the books of accounts of the Company. The Official Liquidator has also observed that no books of accounts were handed over to him at the time of taking charge of the affairs of the Company. Though these facts are not conclusively proved against the accused No.2, he cannot totally be absolved from his liability for filing the OJCR/1/2001 20/21 JUDGMENT statement of affairs. The fact still remains that at present, no books of accounts are available and it is practically impossible for any one to file the statement of affairs. As per the judgments of Delhi High Court and Punjab & Haryana High Court referred to above, a person cannot be compelled to do a thing which is impossible to do. If the Ex-Directors of the Company have not maintained the books of accounts or they have not filed annual returns with the Registrar of Companies, necessary actions can be taken against them under the relevant provisions of the Act. However, the same cannot be considered for the purpose of penalising them under Section 454 (5) of the Act for non-filing of the statement of affairs. The Court, therefore, does not think it proper to pass an order of imprisonment in the case of accused No.2. However, he is liable to pay fine of Rs.5,000/- for his alleged involvement in the affairs