HIGH COURT OF
P. Hema
v.
M. Muthusamy
S.J. MUKHOPADHAYA AND
F.M. IBRAHIM KALIfULLA, JJ.
O.S.A. NOS. 147, 148 AND 200 OF 2006
NOVEMBER 22, 2006
Section
542, read with section 543, of the Companies Act, 1956 - Winding up - Liability
for fraudulent conduct of business - Whether Company Judge/Tribunal can give a
declaration and pass an order either under section 542 or under section 543 or
both only if an application is preferred by Official Liquidator or liquidator
or any creditor or contributory of company-in-liquidation and any such
application filed by administrator of that company is not maintainable - Held,
yes - Whether Company Judge/Tribunal may give an appropriate declaration and
pass order under sections 542 and 543, but for penal order under section 542(3)
it can only give permission to Official Liquidator or liquidator to prefer an
application before Court of competent criminal jurisdiction and no order of
punishment with imprisonment or fine or both can be passed by Company
Judge/Tribunal under section 542(3) - Held, yes
Facts
The
company-in-liquidation, which was a ‘Nidhi’ started
by the appellant, collapsed after collecting huge amounts of deposits from the
public at large under certain schemes. On winding up petitions preferred by the
affected persons, the Company Judge appointed an administrator, besides the
Official Liquidator, to look into the affairs of the company. Since the Company
Judge also made an observation to the effect that there was prima facie
fraud of massive proportions having been committed by the appellants along with
other board members of company-in-liquidation, the administrator appointed by
the Court filed an application under sections 542 and 543 seeking for a
declaration that those persons were liable to be prosecuted for the fraudulent
diversion of the funds. The appellant contested the application denying all the
allegations and also raised the question of maintainability of the same, but
the Company Judge, while passing penal order against the appellant, also held
that the application preferred by the administrator was maintainable.
On appeal to
the Division Bench :
Held
Section 542
deals with the liability for fraudulent conduct of business, if found in the
course of winding up of a company. If it comes to the notice of the Company
Judge/Tribunal that any business of the company had been carried on with intent
to defraud the creditors of the company or any other person or for any
fraudulent purpose, appropriate declaration can be made and the liability of
such person can be determined or appropriate order may be passed under
sub-section (2) of section 542. However, such order can be passed only on the
application of the Official Liquidator or Liquidator or any creditor or
contributory of the company, as is evident from section 542. [
Section 543
enables the Company Judge/Tribunal to assess damages against the delinquent
directors, manager, liquidator or officer of the company in case such person
has misapplied or retained or become liable or accountable or has been guilty
of any misfeasance or breach of trust in relation to the company. It is only if
an application to that effect is preferred by the Official Liquidator or
Liquidator or any creditor or contributory within the time prescribed,that
the Company Judge/Tribunal may compel the person concerned to repay or restore
the money or property. While section 542 makes a person criminally liable for
punishment, section 543 is civil in nature as it only enables the guilty person
to repay or restore the money or property with the company. [
So far as
the criminal action as envisaged under section 542 is concerned, for the purpose
of enforcement of the order of the Company Judge/Tribunal, the Official
Liquidator or Liquidator can ask for permission to prosecute the guilty person
by filing an application under section 457(1)(a). The Company Judge/Tribunal, in such
cases, after giving a declaration under section 542, may permit the Official
Liquidator or Liquidator to move the Court of criminal jurisdiction for
appropriate order to ensure punishment as may be imposed under section 542(3).
[
Thus, the
Company Judge/Tribunal can give a declaration and pass an order either under
section 542 or under section 543 or both only if an application is preferred by
the Official Liquidator or liquidator or any creditor or contributory of the
company. Though the Company Judge/Tribunal may give an appropriate declaration
and pass order under sections 542 and 543, yet for penal order under section
542(3) it could only give permission to the Official Liquidator or liquidator
to prefer an application before the Court of competent criminal jurisdiction
and no order of punishment with imprisonment or fine or both could be passed by
the Company Judge/Tribunal under section 542(3). [
It is the
settled law that if a person or body is created under the statute and such
express powers have been given to such person or body under the provisions of
law, it would not be legitimate to have resorted to general or implied powers
under the law. [
From a
plain reading of sections 542 and 543 as a whole, as it is evident that the
statute itself is very clear and there is no ambiguity with regard to
entitlement to filing an application under sections 542 and 543, the principle
of law of casus omissus cannot
be supplied by the Court in the absence of any necessity. [
From the
said finding, it would be evident that the application under sections 542 and
543 preferred by the administrator of the company-in-liquidation was not
maintainable, nor the Company Judge was empowered to impose a fine in lieu of
imprisonment under section 542(3). In such a background, there was no other
option, but to set aside the impugned order passed by the Company Judge. [
The
impugned order of the Company Judge was to be set aside, accordingly, and the
appeals were to be allowed. [