OFFICIAL LIQUIDATOR Vs. MATHURA PRASAD

JUDGEMENT

(1.) THIS is an application under Section 235 of the Indian Companies Act of 1913. The Vijai Lakshmi Sugar Mills was a private limited company incorporated under the Indian Companies Act, 1913 in the year 1946. It had an authorised capital of Rs. 15,00,000/ - divided into 15,000 ordinary shares of Rs. 100/ - each. The issued capital was, however, only Rs. 60,000/ -divided into 600 shares of Rs. 100/ - each. The company had only three share -holders, viz. Seth Mathura Prasad, Seth Ladli Prasad and Seth Radhey Lal. All these three share -holders were the directors of the company. The company had been incorporated for the purpose of taking over as a running concern a sugar mill which was at that time carrying on the business of sugar manufacture in the name of Vijai Sugar Corporation Ltd. at Doiwala in the district of Dehra Dun. After being incorporated the company purchased and took over all the assets of the Vijai Sugar Corporation Ltd. for a consideration of Rs. 11,15,000/ - and started the business of manufacturing sugar at Doiwala. As provided in the Memorandum of Association of the company one of the directors, Seth Radhey Lai, was the director -in -charge. The company got involved in financial difficulties and by two resolutions passed by its members and creditors on the 4th and 5th August 1949, res -pectively it was decided that it should be voluntarily wound up. Two persons, Sri J. B. Saxena Advocate and Seth Radhey Lal who was formerly the director in -charge of the company, were appointed joint liquidators for the purpose of the voluntary winding up. They took over charge ot the affairs of the company. Subsequently on the 19th August 1949, one of the creditors of the company, viz. The Doiwal Corporation Development Union, filed an application in this Court for the compulsory winding up of the company. Later on, on the 23rd August 1949 the application for compulsory winding up was converted into an application for winding up under the supervision of the Court and on the basis of a compromise arrived at between the parties this Court directed that the winding up of the company should be carried out under the supervision of the Court. Sri J. B. Saxena continued to be one of tha two liquidators but the other liquidator Seth Radhey Lal was replaced by Sri Om Narain Tankha. The two joint liqiudators, Sri Saxena and Sri Tankha, found on the examination of the account books of the company that in respect of the years 1946 -47, 1947 -48 and 1948 -49 there were some entries in respect of the general stores in hand which needed some explanation. They enquired from the past directors but found their replies unsatisfactory. They then applied to this Court under Section 195 ot the Indian Companies Act of 1913 to direct tha examination of the directors on oath. The application was opposed but was ultimately allowed and the director in -charge Seth Radhey Lal was required to reply on oath to certain interrogatories submitted to him by the liquidators. The liquidators, however, thought that the replies too were not very satisfactory. The liquidators then filed this application under Section 235 of the Indian Companies Act on the 1st August 1952, against the three former directors ot the company. The accounting year of the company used to run from the 1st October each year to the 30th September on the following year. In respect of the accounting year 1946 -47 it was alleged that there was an entry dated the 30th September 1947 in the general stores in hand account showing that stores worth Rs. 2,02,082/3/ - had been consumed during the year but no details of the said stores could be found in the account books, and the directors were therefore liable to account for the same. The value of the balance of the stores on the 30th September 1948, according to general ledger was Rs. 3,52,717/14/6 which should have been carried forward to the new ledger of the following year but the opening balance of the new year was only Rs. 1,77,209/14/3. There was thus a difference between the closing balance on the 30th September 1948 and the opening balance on the 1st October 1948 of Rs. l,75,508/ -/3. There was no adequate explanation available in respect of this difference and the liquidators thought that the stores worth Rs. 1,75,508/ -/3 had really disappeared and had presumably been misappropriated by the former directors. It was further alleged that according to the stores purchase account the closing balance of thevalue of stores in hand on the 21st July 1947 was Rs. 4,20,807/2/ - but in the balance -sheet dated the 31st July 1949 the stores in hand were shown as worth Rs. 1, 48,340/3/9. That showed, the liquidators alleged, that the value of the stores was reduced by Rs. 2,72,466/14/3 during the period of ten days on the eve of the winding up of the company. There was no explanation, they contended, as to what happened to the stores worth that amount. Thus so far as the general stores were concerned, the liquidators alleged that the former directors were liable to pay and restore to the company the three sums of Rs. 2,02,082/3/ -, Rs. l,75,508/ -/3 -and Rs. 2,72,466/14/3. It was suggested on their behalf that during the three years prior to the order of winding up the former directors purchased all the stores through two firms Mathura Prasad and Sons and Mathura Prasad and Co., both of which were owned by the directors themselves and it was alleged that the directors had mismanaged the affairs of the company by abuse of their position as directors in their own interest. The directors were sought to be made liable in. respect of two other items of Rs. 15,000/ - each. The first of these items was shown in the general ledger as having been paid on the 21st May 1947, as commission. It was contended that no parti' culars of the amount were available and it was not shown to whom the commission had been paid. The commission, it was contended, had been appropriated by the directors themselves. The other item of Rs. 15,000/ - was entered in the ledger OB the 16th June 1947, as having been paid in respect of the stores. In the Store Receipt Register no -details of these stores were entered and no inventory was available in respect of the stores for which the amount had been paid. This amount, it wa& alleged, had either not been spent at all or the -stores received for the amount had been misappropriated by the directors. Thus the liquidators -prayed that the Court should examine into the conduct of the three respondent -directors and compel them to repay or restore to the company the sum of Rs. 680057/1/6 made by the five items already mentioned above. They also prayed for the costs of the petition.

(2.) AFTER the application had been filed Sri J. B. Saxena, one of the joint liquidators, died and the application was, therefore, continued by Sri Tankha who remained the sole liquidator.

(3.) ON these pleadings the following issues were framed by the then Company Judge Mr. Justice Brij Mohan Lall :