O.L. of Mayo Hospital Ltd. Vs. Dwipa Yogesh Mankodi - Court Judgment

Excerpt:
- - 6. i have heard the learned advocate as well as the official liquidator. if, in reply given by the noticee, a case is made out by the noticee for not initiating action referred to in the show cause notice and if the authority issuing the notice is satisfied that the action proposed to be taken against the noticee should not be taken, no action as stipulated in the show cause notice should be taken or initiated against the noticee. henceforth, upon being satisfied that the noticee was not liable to file statement of affairs, the official liquidator shall, instead of initiating criminal proceedings against the concerned person, shall file a formal report before this court stating the facts of the case, but without joining the concerned ex-director/person as a party to the said report and shall act as per direction, which might be given by this court.a.r. dave, j.1. case against the accused is that though they were directors of mayo hospital ltd. (hereinafter referred to as 'the company'), without reasonable excuse, they made default in complying with the provisions of sec. 454 of the companies act, 1956 (hereinafter referred to as 'the act') by not filing statement of affairs and, therefore, the official liquidator has submitted in this application that they should be punished as per the provisions of sec. 454(5) of the act.2. learned advocate shri a.l. shah appearing for accused no. 8 has submitted that accused no. 8 be discharged as he was not a director of the company at the time when the provisional liquidator was appointed by this court.3. so as to substantiate his argument, he has submitted that 16.2.1999 is the 'relevant date' on which the official liquidator attached to this court was appointed as a provisional liquidator of the company. it has been submitted by him that in fact on 29.10.1997 accused no. 8 had submitted his resignation, though because of some typographical mistake, at several places, 27.10.97 has been shown as the date of his resignation. he has drawn my attention to the averments made in the statement of defence to the effect that the resignation submitted by accused no. 8 on 29.10.97 was placed before the board of directors on 27.1.1998 and the board of directors had accepted the resignation. he has further submitted that the fact with regard to acceptance of his resignation has also been reflected in the annual report of the company. a copy of the annual report for the year 1997-98 has been annexed to the statement of defence which denotes that accused no. 8, i.e., shri r.c. shah, was chairman of the company only up to 27.10.97.4. it has been thus submitted by the learned advocate that accused no. 8 had submitted his resignation in october 1997, which had been also accepted in january 1998 and, therefore, accused no. 8 cannot be made responsible for filing statement of affairs as the relevant date is 16.2.1999 and, therefore, accused no. 8 should be discharged. it has been also submitted by him that all the above facts were duly informed to the official liquidator before the criminal proceedings had been initiated against the said accused.5. the official liquidator, on the other hand, has submitted that when the official liquidator had taken charge of the assets of the company as a provisional liquidator in pursuance of an order dated 16.2.1999 passed by this court in company petition no. 152 of 1995, the official liquidator had found that accused no. 8 was one of the directors of the company and, therefore, a notice had been issued to accused no. 8 calling upon him to show cause as to why proceedings should not be initiated against him for not filing statement of affairs. it has been submitted by him that it is a normal practice of his office to join all persons as accused who are served with such a notice and, therefore, as per the said practice, accused no. 8 has been joined as an accused in the criminal proceedings.6. i have heard the learned advocate as well as the official liquidator.7. according to the provisions of sec. 454 of the act, a statement as to the affairs of the company in the prescribed form is required to be filed within a period of 21 days from the relevant date by the directors or by the person, who was the manager, secretary or chief officer of the company on the relevant date. the relevant extract of sec. 454 of the act is as sunder :(1) where the court has made a winding up order or appointed the official liquidator as provisional liquidator, unless the court 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 :- xxx xxx xxx(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 court, may require to submit and verify the statement, that is to say, persons xxx xxx xxx(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 court may, for special reasons, appoint.(4) xxx xxx xxx(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 hundred rupees for every day during which the default continues, or with both. xxx xxx xxx(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.' 8. looking to the legal provisions referred to hereinabove, it is clear that for the purpose of imposition of punishment under the provisions of section 454(5) of the act, the accused should have been one of the directors on 16.2.1999, the day on which the official liquidator was appointed as a provisional liquidator and the accused should have made a default in filing a statement of affairs within twenty one days from 16.2.19999. upon perusal of the record, it is crystal clear that accused no. 8 must be discharged in view of undisputed fact that he had submitted his resignation in october, 1997 and the resignation had been accepted by the board of directors in january, 1998 whereas the relevant date is 16.2.1999, when the official liquidator was appointed as a provisional liquidator. the fact regarding acceptance of resignation is also reflected in the annual report of the company for the year 1997-98. this fact was also made known to the official liquidator when the said accused had given reply to a show-cause notice issued to him by the official liquidator calling upon to show cause as to why he should not be prosecuted under sec. 454(5) of the act. in view of the fact that the accused was not a director on 16.2.1999 on the relevant date, he cannot be punished under the provisions of sec. 454(5) of the act.10. in my opinion, the practice of initiating criminal proceedings against all persons, who were served with such a notice by the official liquidator is not correct. the purpose behind issuance of a show cause notice is to call upon the noticee to show cause as to why a particular action should not be taken against the noticee. if, in reply given by the noticee, a case is made out by the noticee for not initiating action referred to in the show cause notice and if the authority issuing the notice is satisfied that the action proposed to be taken against the noticee should not be taken, no action as stipulated in the show cause notice should be taken or initiated against the noticee.11. in view of the fact that accused no. 8 had already informed the official liquidator about the facts, which have been stated in the statement of defence, in my opinion, the official liquidator should not have initiated criminal proceedings against accused no. 8. the practice, which the official liquidator is following with regard to joining all the concerned persons as accused, does not appear to be proper and, therefore, such a practice must be discontinued. simply because something wrong was done in the past, the authorities should not continue or repeat that wrong in the name of practice. if the practice followed is not legal or is inconsistent with sound common sense or the principles of natural justice, such a practice must be abandoned. henceforth, upon being satisfied that the noticee was not liable to file statement of affairs, the official liquidator shall, instead of initiating criminal proceedings against the concerned person, shall file a formal report before this court stating the facts of the case, but without joining the concerned ex-director/person as a party to the said report and shall act as per direction, which might be given by this court. such a course shall not only reduce the burden of the office of the official liquidator and this court but shall also relieve an innocent person from undergoing the agony of facing criminal proceedings.12. from the facts stated hereinabove and in view of the fact that accused no. 8 was not responsible for filing statement of affairs, accused no. 8 is hereby discharged.