MUKTSAR ELECTRIC SUPPLY CO LTD Vs. STATE

JUDGEMENT

(1.) THIS is a petition filed by S. P. Chopra and Company, Chartered Accountants, New Delhi, petitioner No. 1, and S. P. Chopra, a partner of that company, petitioner No. 2, under Section 281 read with Section 216 of the Indian Companies Act, 1913 (hereinafter called the Act), which admittedly would govern the present case.

(2.) THE allegations in the petition are that the Muktsar Electric Supply Company Limited {in liquidation) (to be called the company) was incorporated under the Act with its registered office at Lahore. On 30th September, 1942, it went into voluntary liquidation and petitioner No. 1 were appointed its voluntary liquidators. Petitioner No. 2 was the sole proprietor of petitioner No. 1 till 1949, and since then he had been the senior partner of petitioner No. 1 and in that capacity he was generally looking after the conduct of the liquidation of the company. The High Court of Lahore passed a supervision order under Section 221 of the Act but petitioner No. 1 continued to function as liquidators of the company. Before the partition of the country in August, 1947, the registered office of the company was shifted to East Punjab. The records of the company, however, could not be brought from Lahore initially but later on some of them were retrieved and brought to Delhi between 1948 and 1949. On account of the transfer of the registered office to East Punjab the various returns under the Act were filed from time to time with the Registrar of Companies, East Punjab. The returns which were filed with the Registrar have been set out in paragraph 6 of the petition. They were filed from 8th July, 1950, to 5th July, 1961, on which date the final statement of account up to 30th January, 1961, was submitted. The assets of the company were sold to Okara Electric Supply Company Limited, through its managing director, Shri R. L. Oberoi (since deceased), for a sum of Rs. 1,00,000 and the balance of the banking account of the company in 1947, with the Punjab National Bank Ltd. , Lahore, was got transferred to the same bank in New Delhi. The final meetings of creditors and members for the dissolution of the company were held originally in February, 1960, and again on January 30, 1961. One of the creditors of the company was Siemens Limited, Lahore, which had its residence and principal office in Germany (hereinafter referred to as the foreign company ). It is stated that the total claim of the foreign company was between Rs. 35,000 to Rs. 40,000. It appears that owing to the II World War the assets of the foreign company had vested in and were controlled by the Custodian of Enemy Property of undivided India till August, 1947. According to the petitioners, it was decided to declare cent per cent, dividend but before doing so, they wanted to ensure that the foreign company's claim was suitably settled. For that purpose in 1948, the petitioners approached the Custodian of Enemy Property, Bombay, and made an offer to him of a sum of Rs. 30,000 in full and final settlement of the foreign company's entire claim. This offer was further pursued on behalf of the petitioners by Shri Duschek and Shri K. N. Taneja, chartered accountants. The Custodian, Bombay, however, informed the petitioners that they should disburse the amount in Pakistan since the foreign company was in Lahore and get clearance from the appropriate Pakistan authorities to the effect that the amount of the claim could be received by the Custodian in India. In paragraph 12 of the petition, it was stated that in August, 1949, in view of the fact that the Custodian was willing to accept the said amount only after clearance from the Pakistan authorities, the petitioners opened a separate account with the Grindlays Bank Ltd. , Simla, specifically for the purpose of payment of the said claim and deposited the sum of Rs. 30,000 in that account. This amount was earmarked by the petitioners for payment to the Custodian, Bombay. According to paragraph 13, the petitioners utilised the services of Kh. Nazir Ahmad, advocate, Lahore, for getting clearance from Pakistan authorities. He arranged to get the clearance. Besides Kh. Nazir Ahmed and a junior colleague of his, Mr. Puschek was also engaged for the purpose of work between Bombay and Lahore for getting the necessary clearance. Some travelling expenses were paid to the members of the staff. For professional services rendered and other expenses, the petitioners incurred a total expenditure of Rs. 11,282 in this connection. It has further been stated in the petition that after deducting the sum of Rs. 11,282 the balance of Rs. 18,718 was paid to the Custodian at Bombay by cheque in full and final settlement. The negotiations in this connection lasted for about a year and certain letters were exchanged between the parties. In the return filed by the petitioners with the Registrar of Companies, Punjab, under Section 244 of the Act for the year ending 30th September, 1949, in Form No. 58 it was stated : " Custodian, Enemy Property, Bombay 30,000. "

(3.) IN other words, Rs. 30,000 were shown to have been paid to the Custodian, Bombay, as against Rs. 18,718 paid to him by cheque and Rs. 11,282 spent on his account on the expenses. The petitioners maintained that that statement was correct and that the opinion of leading firms of chartered accountants also supported the position taken by them. It was further alleged that one Ram Saran Khanna, who was an employee of petitioner No. 1 and was its liquidation assistant looking after various liquidations entrusted to petitioner No. 1, had the custody of all the relevant records. He removed with ulterior motives certain records including the record of the company some time before September, 1963. The petitioners tried to recover those records but without success. Ram Saran died in April, 1964. The petitioners had in their possession only some correspondence with the Registrar. In paragraph 18 it was stated that petitioner No. 2 was appointed inspector in April, 1963, to investigate into the affairs of Bennett, Coleman and Co. Ltd. , Sahu Jain Ltd. , Ashoka Marketing Ltd. , New Central Jute Mills Co. Ltd. and Rohtas Industries Limited, which were under the management and control of Shri Shanti Prasad Jain. Petitioner No. 2 had been carrying on investigation and it is alleged that with a view to intimidate him and obstruct him to carry on as inspector, Shri Shanti Prasad Jain managed to contact Ram Saran and through him obtained access to the documents of petitioner No. 1 including certain documents and information relating to the company. After doing that and after distorting facts, it is alleged in paragraph 19 that Shri Shanti Prasad Jain got lodged a complaint with the police at Delhi against petitioner No. 2 in which a false suggestion was made that the aforesaid petitioner had filed a wrong statement with the Registrar inasmuch as he had shown Rs. 30,000 as paid to the Custodian when in fact Rs. 18,718 were paid. This complaint was filed by one Dayavrat who had no connection whatsoever with the company. In paragraph 21 petitioner No. 2 claimed that he had been entrusted with a large number of important assignments and that he holds a high status in his profession. He was a member of the Council of the Institute of Chartered Accountants of India and also its Vice-President and President during the years 1955-56 and 1956-57 respectively. The petitioners maintained that they had all along acted honestly and reasonably and since they apprehended that proceedings might be brought against them in respect of negligence, default, breach of duty, misfeasance or breach of trust in respect of the aforesaid payment to the Custodian and the statement filed with the Registrar for the year ending 30th September, 1949, and any matter or claim arising therefrom, the present petition was filed in August, 1964, praying that they be relieved from any liability under the aforesaid provisions. Certain other directions were sought in the petition but they are no longer pressed and need not be stated. It may be mentioned that an affidavit was filed by petitioner No. 2 affirming the correctness of the contents of the various paragraphs of the petition. On 18th August, 1964, this court directed a notice to be issued to the Registrar of Companies and to Dayavrat for 18th September, 1964. Dayavrat filed a reply dated 17th September, 1964, through Shri T. R. Bhasin, advocate. In this reply it was pointed out, inter alia, that no petition was competent under Section 518 of the Companies Act, 1956 (sections 633 and 518 of the new Act were also mentioned in the petition) since the company had been wound up and dissolved in 1961. The other objection raised was that a liquidator could not be called an officer of the company and could not claim the benefit of the provisions under which relief had been claimed. It was asserted that the information which had been lodged by the answering respondent was motivated by public spirit in the interest of weeding out corruption since an offence of criminal breach of trust had been committed in respect of public funds. It was stated that as the answering respondent did not know what the police was doing in the matter of investigation it would be proper to issue notice to the Investigating Officer, Police Station, Parliament Street, New Delhi. Apart from denying the allegations relating to Shri Shanti Prasad Jain being responsible for the complaint which had been filed against petitioner No. 2, this respondent stated that he was not in a position to deny or affirm the averments made in paragraphs 1 to 18 of the petition or in paragraphs 20 to 23. The Registrar of Companies, Shri H. S. Kamlani, also filed an affidavit in reply dated 5th November, 1964, admitting the correctness of most of the statements contained in the petition which could be ascertained from the records, but he expressed inability to state anything about those facts regarding which records were not available in his office. In paragraph 8 of his affidavit it is said that the statement which had been filed by the petitioners under Section 244 of the Act for the period from 1st October, 1948, to 30th September, 1949, had been seized on 29th July, 1964, by Shri Tara Chand, Deputy Superintendent of Police, Parliament Street, New Delhi, in connection with the investigation of F. I. R. No. 69 dated 28th January, 1964, alleging an offence under Section 409 of the Indian Penal Code. He admitted the correctness of the statements made in paragraphs 17, 18 and 19 of the petition and that petitioner No. 2 was appointed inspector by the Central Government to investigate into the affairs of the companies under the management of Shanti Prasad Jain. In paragraph 9 it was stated :