A.K. Sikri, J.@mdashThese proceedings are filed by M/s. Atlantic Engineering and Services Pvt. Ltd. (hereinafter referred to as the ''Company''), which is in liquidation through the O.L. against the ex-directors under Sections 542 and 543 of the Companies Act alleging misfeasance on the part of the respondents. The averments made in the application are to the effect that the respondents are jointly and severally liable to pay to the O.L. sums amounting to Rs. Rs. 1,09,48,390/- being the amount of debts recoverable from various parties by the company in respect of advances made, trade debtors and other advances made by the company or such part of the said sums as the Court would deem fit after due inquiry. It is stated that the statement of affairs shall reveal that various loans were advanced by the company through them and no action was taken to recover the same with the result they have become time-barred. The amount of such loans totals up to Rs. 28,82,309.86p. Statement of affairs further shows that a sum of Rs. 80,66,04/- is to be recovered from various sundry debtors. Notices were issued to these debtors for recovery of the amount, but most of them have filed counter claims with the O.L. on the ground that the company had failed to complete the projects. In view this it is stated that the liability to pay the aforesaid two amounts (making a total of Rs. 1,09,48,390/-) is on the respondents as ex-directors who occupied fiduciary position with regard to the affairs of the company. The said relationship required he directors to exercise their powers bona fide for the benefit of the company. According to the O.L., the omission on the part of respondents in not initiating steps in accordance with law for recovery of the aforesaid amounts shows that the loss cause by the directors of the company was because of the breach of trust and breach of duty on their part and, Therefore, they are liable to make good the loss caused.
2. In reply filed by the respondents all these averments are denied. It is stated that there is no breach of duty on the part of the respondents as directors, who acted in good faith. It is also explained that the O.L. vide letter dated 20th April, 1988 informed the respondent No. 1 that as per the statement of affairs filed by the respondents, the demand notices were issued to all debtors, but some notices were received back undelivered with certain postal remarks. The respondent No. 1 vide letter date 14th September, 1988 informed the O.L. that each case has to be studied separately and contractually and effective steps had to be taken for the recovery from the debtors and for that purpose services of a professional may be hired, who is well acquainted with a the legality of the contracts. The respondents also intimated the O.L. vide letter dated 20th April, 1988 that the O.L. had initiated correspondence with all debtors and the notices sent to five debtors were returned undelivered and information pertaining to the same were given to the O.L. The O.L. vide letter dated 2nd February, 1989 informed the respondents that in view of the suggestion made by them the job of processing the case of the debtors was to be entrusted to a professional who is wll conversant with the contracts. After the O.L. had dealt with all the aspects of the statement of affairs filed by the respondents, the matter was zeroed to the aspect of sundary debtors. In the minutes of the meetings which were held from time to tie, there was no mention of any defects in the statement of affairs made in the agenda/notices or minutes of the meeting, which were convened by the O.L. The O.L. has suppressed the material facts. It is further stated that the matter of sundary debtors was dealt with at length and decision was taken by the O.L. in the meetings of the Committee of Inspection on 27th March, 1989 to the effect that since recovery from the debtors was to be paid to the Corporation Bank, hence steps for realisation may be taken by the Bank itself as the O.L. was not in a position to pursue the debtors keeping in view the contractual and legal aspects of the contract.
3. Both the parties have also filed affidavits in support of their respective contentions.
4. It may be noted at this stage that various applications were filed u/s 446(2) of the Act for recovery of Rs. 80,66,004/- from sundary debtors. In this respect, it may also be mentioned that the company had undertaken the projects for refrigeration and cold-storage with so many parties and for the work done by the company and the amount is purportedly due to be paid by such parties. The Official Liquidator had also filed six applications against such persons to whom the contracts were awarded. These applications were filed in the years 1990/1991. All these applications filed u/s 446 of the Companies Act against those persons were contested by the said parties. Only in one such application (CA (C) No. 869/90) wherein claim was for Rs. 44,841.45p. the respondent in the said CA admitted the liability of Rs. 16,873/- and paid the same during the proceedings. In other cases the respondents have stated that no such amount was payable. Most of these respondents were government departments. On the basis of those replies and no document in possession of the company to substantiate the claim, all these applications were dismissed. These cases fall in two categories. It may be useful to quote one such order from each category:-
''''CA (C) No. 105/91. This is an application u/s 446 of the Companies Act, 1956 is filed for recovery of Rs. 1,29,499/- as principal amount and Rs. 5,30,94/- as interest totalling to Rs. 1,82,593/- with future interest @ 12% p.a. against Telecom Electrical Division No. 1, 3rd Floor, SION, Bombay. The claim is on behalf of the company in liquidation. It is stated that petitioner company had undertaken the projects for refrigeration and cold storage with the respondent and for the work done by the company, the aforesaid amount is due and payable by the respondent.
In the reply filed by the said respondent it is stated that the company committed breach of contract by not complying the contract and, Therefore, the contract was rescinded vide letter dated 7th June, 1985. It is also the case of the respondent that an advance of Rs. 2,04769/- was given by the respondent to the petitioner which was also to be adjusted and, Therefore, as far as respondent is concerned, no such amount is payable.
The aforesaid factual matrix would disclose that the respondent which is a Government Department has disputed the liability and in fact as per the stand of the respondent no amount is payable by it. The matter is pending for the last more than 13 years. At this distance of time, it would be difficult to adjudicate on the respective contentions of the parties and that adjudication may not yield anything that too when the company is not possessed of any records of the transaction in question. The proceedings are, Therefore, closed.
CA (C) No. 105/91 is Therefore disposed of. CA (C) No. 465/91
This is an application u/s 446 of the Companies Act, 1956 for recovery of Rs. 53101.34/- as principal amount and Rs. 24,426/- as interest totalling to Rs. 77,527/- with future interest @ 12% p.a. against The Executive Engineer Ahmedabad Electrical Division, Road and Building Department, Ahmedabad. The claim is on behalf of the company in liquidation. It is stated that petitioner company had undertaken the projects for refrigeration and cold storage with the respondent and for the work done by to company, the aforesaid amount is due and payable by the respondent. In the reply filed by the said respondent it is pointed out that the company had completed the work to the extent of Rs. 11,93,367.30 and the bills were also raised for this amount. Against this, respondent had made the payment of Rs. 11,87,094.16 leaving a balance of Rs. 6,273.44. However, it is also stated even this amount is not payable as it is respondent who is to recover a sum of Rs. 29,823.67/- i.e. 2.5% of the capital cost from the total amount payable to the applicant company. The company is not possessed of any document to substantiate the claim and the amount involved is only Rs. 6,273.44, it may not be practicable to adjudicate upon this aspect. CA (C) No. 465/91 is Therefore disposed of.''''
5. It would be clear from the reading of the aforesaid orders that the position in respect of sundry debtors was that majority of the amounts shown to be due and recoverable in the books of account of the company related to various turnkey projects including supply, erection and commissioning of specified purposes as per the terms of the respective contracts. However, due to the winding-up of the company in the year 1987 these contracts could not be completed. As the payments were to be given to the company strictly in accordance with the terms and conditions of those contracts and outstanding reflected were subject to verification and finalization, the company could not recover these amounts because of non-completion of the work and in most of these cases it is found ultimately that these amounts were not payable to the company. Be as it may, fact remains that the amounts became unrecoverable only because of the non-completion of the work and that happened because of the winding-up of the company. Therefore, it cannot be said that any amounts were due and payable to the company for which the respondents did not take steps for recovery.
6. In so far as the amount shown as ''''Loans and Advances'''' to the tune of Rs. 2882309.86p. is concerned, as per the list it is payable by 174 parties, which can be categorised as follows:-
a) ''''Suppliers
b) Sub-contractors
c) Transporters
d) Various Govt. Depts., Co-operative Societies, Electricity Boards,
e) Rents and Rent Deposits.
f) Imprest accounts of various staff.
g) Sales Tax recoverable - at Serial No. 147
h) Income Tax deducted at Source from Contract Amounts - Serial No. 149.
7. However, it has come on record that the records and books of accounts of the company, which were in possession of the O.L. have been wasted/dissipated by afflux of time and are no longer available. This is not attributed to the directors and Therefore, they cannot be faulted with on this account.
8. It may also be noted that as per the averments made in the application, major creditor of the company was Corporation Bank, Greater Kailash II, New Delhi, for whose benefit the recoveries were sought to be made by the O.L. However, the respondents have already settled the dues of Corporation Bank and there are no outstanding amount payable to the said bank as on date.
9. Conclusion of the aforesaid discussion would be that the O.L. has failed to make out a case under Sections 542 and 543 of the Companies Act.
10. This application is accordingly dismissed.
