OFFICIAL LIQUIDATOR Vs. ASHOK KUMAR

JUDGEMENT

(1.) This is an application under Section 543(1) of the Companies Act, 1956, on behalf of the official liquidator of Messrs. Navarashtra Publishing Company Ltd. (in liquidation) (hereinafter referred to as " the company ") which was originally filed against three persons, being the erstwhile directors, out of whom one, namely, Ramdas, respondent No. 2, is since dead. According to the case of the official liquidator, respondent No. 1, who was acting as the director-in-charge of the said company, failed to (i) deposit the employees' and employer's share of provident fund contribution with the Provident Fund Commissioner for the period November, 1963, to April, 1966, amounting to Rs. 16,279.62 ; (ii) deposit employees' and employer's share of contribution payable to the Employees' State Insurance Corporation from January 1, 1965, to the date of the winding-up order, namely, a sum of Rs. 3,306.90, under the Employees' State Insurance Act; (iii) account for the sum of Rs. 1,19,862 being the price of the paper in stock which was not handed over to the official liquidator ; and (iv) repay a sum of Rs. 15,000 on account of cost of certain structural materials set up by the company on a piece of land of respondent No. 1 which were removed by him. According to the case of the official liquidator, the respondents are, therefore, guilty of misfeasance, misapplication of company's fund and various acts of non-feasance and breach of trust in relation to the company and are accountable and bound to repay and restore the money to the company with interest and costs.

(2.) In order to, appreciate the points arising for my determination, a few relevant facts and circumstances leading to the filing of this application must be stated. The company was registered, inter alia, to carry on the business of printing and publishing a Hindi daily from Patna, namely, the Navarashtra, by the late Sri Devbrat Shastri, father of respondent No. 1 in the year 1947 with an authorised capital of Rs. 7,50,000. According to the evidence that has come on the record, Sri Devbrat Shastri founded the said paper to propagate his political ideas. Shri Shankar Dayal Singh (respondent No. 3), another politician, and Shri Ramdas (deceased respondent No. 2) were the other two directors of the company along with Shri Shastri. The circulation of the paper was quite fair for some time, but on the death of Shri Shastri on January 10, 1962, in a jeep accident, the position of the company started dwindling. Admittedly, respondent No. 1 was taken in as a new director of the company in place of his father on January 12, 1962, and was made the director-in-charge. It is also evident from the record that this respondent No. 1 was a young man of about 19 years only and was still prosecuting his studies in a college. Thereafter the company gradually started suffering losses so much so that in spite of personal contribution by respondent No. 1, its substratum could not be saved and respondent No. 1 himself made an application in this court for its winding-up which was registered as Company Petition No. 5 of 1966. By an order dated the 8th July, 1966, this court directed the aforesaid company to be provisionally wound up and on the 2nd September, 1966, final winding up order was passed and the official liquidator was appointed the liquidator. On making a primary investigation into the affairs of the company, he found out various irregularities in the course of his taking over charge of the books and records. He, accordingly, submitted a report in the winding-up case on November 16, 1966, and this court in the said proceeding appointed Messrs. B. Gupta & Co. as auditors to investigate into the affairs of the company in the light of Section 543 of the Act. The auditors on their investigation submitted a report on January 10, 1968, from which it appeared that the respondents had committed various irregularities just mentioned above. In pursuance of the said report, the official liquidator filed the present application on April 13, 1970, and judge's summons was issued to all the respondents by this court.

(3.) Respondent No. 1 has filed a counter-affidavit, and according to his case, Shankar Dayal Singh (respondent No. 3) was not eligible to be a director of the company as he did not hold the qualification shares to make him eligible to be a director, and, as a matter of fact, the Registrar of Joint Stock Companies had not accepted him as a director from the very beginning, and as such on the death of his father there was no duly constituted board of directors and he could not be taken as a director as such. The actual management and control was in the hands of the workers of the company engaged in the publication of the newspaper and the workers who wanted to continue the publication asked him to act as director of the company " though neither he was elected as a director nor he in fact took charge of the office of the director as required in law " and was a mere student at the time who, however, had a desire to perpetuate the name and the political views of his father who had made great sacrifices and in that anxiety allowed the publication to continue and his "name was utilised as director in place of his father."