THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Application No.126 of 2010 in Company Petition No.102 of 2006 Dated:13th April, 2010 Between: Mr. Kailas S.R. ….Applicant AND Kakatiya Cement, Sugar & Industries Limited …Respondent **** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Application No.126 of 2010 in Company Petition No.102 of 2006 ORDER: This Company Application has been taken out by Kailas S.R. under Section 433(e) of the Companies Act, 1956, r/w. Rules 9 and 106 of the Companies (Court) Rules, 1959, seeking a direction to the respondent to comply with the order passed by this Court on 13.02.2007 by releasing the balance amount of Rs.1,29,24,931/- along with accrued interest to the applicant. 2. The applicant filed Company Petition No.102 of 2006 against the respondent herein under Sections 433 (e) & (f) and 439 of the Companies Act, 1956, r/w. Rule 95 of the Companies (Court) Rules, 1959, seeking the following reliefs: “a) Kakatiya Cement, Sugar and Industries Limited, the respondent company herein be wound up in accordance with the provisions of the Companies Act, 1956; b) Such other orders may be passed as are deemed fit and proper in the circumstances of the case.” Pending disposal of the Company Petition, an interim order came to be passed on 13.02.2007, which reads as hereunder: “After hearing at length, the parties have made certain suggestions. Basing on which, this Court is passing the following order: Pending further orders, the respondent Company is directed to pay an amount of Rs.65 lakhs to the petitioner, and in addition, to keep the balance amount of Rs.1,29,24,931/- in fixed deposit in any of the nationalized bank, which shall not be used by the respondent for any purposes, till the dispute raised by the Income Tax Department against the respondent company is adjudicated, and unless any claim is made by the Department against the petitioner Company, with reference to the amount, under Section 56 of the Income Tax Act. With reference to the above issues, if they are decided in favour of the company, the petitioner is entitled to receive those amounts, together with accrued interest. But, if any liability is created against the company, with reference to the payment received as a result of the award, only to that extent, the liability of the company has to be discharged, from out of the amount kept in the fixed deposit. The respondent is also further agreed to give the power to the petitioner to engage a counsel in the pending Income Tax Appeal before the Tribunal to contest the case, since favourable result would be beneficial to the petitioner. The said authorization is directed to be issued in favour of the petitioner, within a period of three weeks from today. Along with the authorization, as stipulated, the respondent is directed to pay the agreed amount of Rs.65 lakhs to the petitioner. Post on 04.06.2007 for reporting compliance.” It is represented that an amount of Rs.65,00,000/- has been paid and the balance amount of Rs.1,29,24,931/- has been kept in Fixed Deposit. The instant application has been filed by the applicant seeking a direction to the respondent to release the amount of Rs.1,29,24,931/- withheld by it. It is the contention of the applicant that the appeal filed before the Income Tax Appellate Tribunal has been decided in his favour and therefore, there is no liability of him to pay any amount to the Income Tax Department and thus, he is entitled to receive Rs.1,29,24,931/- along with interest accrued thereon. 3. Notice came to be ordered on 11.02.2010. 4. The respondent entered appearance through a counsel and filed counter-affidavit. One P.Venkateswarlu, Managing Director of the respondent Company has sworn to the counter-affidavit filed on behalf of the respondent Company. It is stated in para.8 of the counter- affidavit that the Income Tax Department has preferred an appeal before the High Court of A.P. assailing the order passed by the Income Tax Appellate Tribunal. Para.8 of the counter affidavit needs to be noted and it is thus: “8. I respectfully submit that subsequent to the orders of the Income Tax Appellate Tribunal in favour of the applicant, aggrieved thereby, the Income Tax Department, as it has transpired on our oral enquiries, has gone in appeal before the Hon’ble High Court of A.P. This respondent has been trying to get the details of the said appeal. Till the said appeal is disposed of, this respondent is not in a position to release the said balance amount of Rs.1,29,24,931/-.” 5. Heard Sri B.Chandrasen Reddy, learned counsel appearing for the applicant and Sri D.Seshadri Naidu, learned counsel representing Sri J.N.Bhushan, learned counsel appearing for the respondent. 6. Learned counsel appearing for the applicant submits that the respondent is empowered to retain the money till the disposal of the appeal before the Income Tax Appellate Tribunal and since the appeal has been decided in favour of the applicant, the applicant is entitled to receive the amount retained by the respondent. 7. In response, learned counsel appearing for the respondent submits that the Income Tax Department has challenged the order passed by the Income Tax Appellate Tribunal before the High Court and the said proceedings are pending as WP (SR) No.12843 of 2008 and therefore, the applicant is not entitled to seek for release of the money. He further submits that in the event of amount being released, the applicant may be directed to furnish a bank guarantee. 8. The order passed by this Court on 13.02.2007 has been extracted supra. The purpose of retaining the amount of Rs.1,29,24,931/- with the respondent is to meet the tax liability of the applicant in the event of the proceedings initiated by the Income Tax Department ending against the applicant. As on this day, the appeal before the Income Tax Appellate Tribunal ended in favour of the applicant. Copy of the order passed by the Income Tax Appellate Tribunal is also placed on record. It is explicit from the above referred order that there is no liability of the applicant to pay any amount to the Income Tax Department. Relevant portion of the order passed by the Income Tax Appellate Tribunal reads as follows: “8. We have heard the rival submissions and have perused the material available on record. After careful consideration of all facts and circumstances of the case, we find some force in the contention of the assessee that the materials relied upon by the A.O. are not sufficient enough to show that the amount was received by the assessee towards commission. The Board Resolution on which strong reliance was placed by the Revenue is not found in the Minutes of the Company. Moreover, true copies of the Board Resolution submitted to the bank were not signed by any of the Directors of the Company. Copies of Board resolution/specimen signature given to the bank produced before us were signed by Mr.Sunil and Mr.Muralikrishna and both of them are not authorized to sign any such documents. The company is a separate legal entity and it cannot be responsible for all the acts of commissions and omissions by its employees or directors using the name of the company. Even the Directors or the employees without any authorization in the name of the company and without proper board resolution with or without malafide intention cannot make the company liable for their actions. In our opinion, the Revenue has not brought any concrete material to prove that the bank account of Mumbai had been opened by the person duly authorized by Board of Directors of the Company. It is evident from para.7 of the order of the first appellate authority that the directors of the company Mr.S.R.Kailash and Sri Ravi Kailash had received the commission on the alleged transaction and transferred the same to their other concern VIAL which has already offered the said amount of commission to tax. In view of the above, we hold that the assessment of the said commission income in the hands of the assessee without any evidence showing direct involvement of the assessee is not justified. We, therefore, uphold the order of the first appellate authority in deleting the entire addition of Rs.58,33,020/- made to the income of the assessee.” The Income Tax Appellate Tribunal passed the order on 30.04.2008. As on this day, the Revenue has not obtained any interim orders restraining the respondent from releasing the amount in favour of the applicant. There is no impediment, as on this day, for the applicant to get the money retained by the respondent Company. 9. Hence, the Company Application is disposed of directing the respondent Company to pay Rs.1,29,24,931/- along with accrued interest to the applicant within 30 days. No costs. ______________________ B.SESHASAYANA REDDY, J. Date:13th April, 2010. Note: Issue C.C. within 3 days. B/O cs THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Application No.126 of 2010 in Company Petition No.102 of 2006 Dated:13th April, 2010