1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH AT NAGPUR Official Liquidator's Report No. 52/2008 In the matter of Maharashtra Explosives Co. Ltd. (In Liquidation) -------------------------------------------------------------------------------------------------------------------------------------- Office Notes, Office Memoranda of Coram, appearances, Court's Orders or Court's or Judge's Orders directions and Registrar's orders. -------------------------------------------------------------------------------------------------------------------------------------- Mr. Patole, Official Liquidator. Mr Rizvy Advocate with Mr. C. V. Paturkar for M/s. C. V. Paturkar and Co. CORAM: B. P. DHARMADHIKARI, J. DATED : 9 th JANUARY, 2009 1. Heard. 2. The claim in the Official Liquidator's Report is for recovery of excess amount paid as audit fees to M/s. C. V. Paturkar and Company. The Official Liquidator by inviting attention to Rule 304 of the Companies (Court) Rules, 1959 has pointed out that half percent of the amount brought to the credit after deducting from it the amount spent for running the business of the Company and the amount paid by Official Liquidator to secured Creditors is only legally permissible. He points out that while effecting payments, the amount payable to the secured creditors was also taken into account and half percent has been paid as audit fees even on 2 that amount. He has invited my attention to pursis filed vide St. No. 11962/2008 to point out that this amount of Rs.8,48,346.73/- has been paid in excess to the Chartered Accountant. 3. Mr. Rizvy, learned counsel invited my attention to the reply filed on affidavit on behalf of M/s. C. V. Paturkar & Company. He states that half percent of the audit fees has been rightly calculated and he further pointed out that in view of the subsequent payments contemplated by said Rule 304 further audit fee of half percent has become payable to the Chartered Accountants. He pointed out that as on today the Chartered Accountant has received an amount of Rs.20,18,567/- and an amount of Rs. 12,63,560/- plus sales tax is in balance. He contends that half percent paid at the first stage is correctly calculated and proposed payment to secured creditors is rightly not taken into account because as on that date there was no payment. Mr. Rizvy has requested the Court to permit his client Mr. C. V. Paturkar to explain 3 the position to the Court. Accordingly, I have heard Mr. C. V. Paturkar. He states that the said rule contemplates actual payment and not the amount set aside for payments to the secured creditors in future. According to him, as on the relevant date the secured creditors were not paid, the entire amount has been taken into consideration correctly by the Office of the Official Liquidator for payment of half percent audit fees. 4. After hearing learned counsel for the parties, I find that the total amount, then received by the Official Liquidator was Rs. 40,37,13,535/- and the audit fees at half percent has been calculated on it at the rate of Rs. 20,18,567/-. On it service tax at 12.36% totaling to Rs. 2,49,494/- was also calculated. After deducting 10.30% of gross fees payable as TDS, fees of Rs. 20,63,451/- have been paid to the Chartered Accountant. It is, therefore, obvious that the amount required to be paid to the secured creditors was then taken into consideration while calculating the entitlement of the 4 Chartered Accountant. It is also admitted position that the secured creditors have been paid subsequently that is after that fees were paid to the Chartered Accountant. 5. Rule 304 of the Companies (Court) Rules, 1959, reads as under:- “304 Audit fees:- (1) Audit fees according to the following scale on the gross amount brought to credit, including the produce of calls on contributories, interest on investments and rents from properties, but after deducting (a) the amount spent out of the money received in carrying on the business of the company and (b) the amounts paid by the Official Liquidator to secured creditors (other than debenture holders), shall be paid to the auditor and debited to the account of the liquidation to which the audit relates:- On the amount brought to credit including the produce of calls on contributories interest on investments and rents from properties, but after deducting (a) the amount spent out of the money received in carrying on the business of the company, and (b) 5 amounts paid by the Official Liquidator to secured creditors (other than debenture holders) 1/2 per cent On disbursement, other than payments to secured creditors not being debenture holders. 1/2 per cent (2) Where the audit is by the Examiner of Local Accounts, audit fees calculated on the above scale shall be paid into the public account of India in the Reserve Bank of India to the credit of the State Government concerned.” Perusal of Rule 304 shows that the amount paid by Official Liquidator to the secured creditors is required to be deducted while calculating the entitlement of Chartered Accountant to claim the audit charges. In other words, the Chartered Accountant is not able to claim audit charges on the amount paid by the Official Liquidator to the secured creditors. In view of this clear scheme of Rule 304, if the arguments as advanced by Mr. Rizvy and Mr. Paturkar are accepted, only Official Liquidator will be in a position to 6 decide in which case the Chartered Accountant is to be paid fees after taking into account the amount meant for payments to the secured creditors and in which case the Chartered Accountant should not be paid the fees on that amount. However, such discretion is not contemplated by Rule 304. Even the law does not leave such discretion in the Official Liquidator. In the circumstances, the arguments advanced by the respondents cannot be accepted. 6. In view this position, it is clear that the payment made to the Chartered Accountant by taking into account total amount of Rs. 40,37,13,535/- is incorrect. The amount payable to the secured creditors ought to have been deducted for the purpose of calculating the entitlement of Chartered Accountant and half percent of the amount arrived at, thereafter, ought to have been sanctioned as audit fees. It is, therefore, clear that the Chartered Accountant has received payment in excess. 7. There is some dispute between the parties about 7 exact amount of excess. I leave it to the Official Liquidator to work out the exact amount excess received by the Chartered Accountant and such amount be worked out by 22.01.2009 and the Official Liquidator is free to recover the same from the Chartered Accountant in accordance with law. The O.L.R. is accepted to that extent. 8. Needless to mention that if the payments at the second stage are due, the Chartered Accountant is free to raise his bills in accordance with law for that purpose and the Official Liquidator is duty-bound to honour the bills as per the law. JUDGE kahale