The company applications, C.A.Nos.1625 to 1628 of 2006 are filed by the petitioning creditor, who was the petitioner in C.P.No.387 of 2003, for direction against the respondents 3 to 8 therein to file statement of affairs, to take cognizance of offence under section 454(5) of the Companies Act against the respondents 3 to 8, to direct the Official Liquidator to examine the conduct of affairs of the first respondent company by respondents 3 to 8 and submit a report on the misfeasance and for injunction against the respondents from alienating, transferring or disposing of any assets or movables or immovables of the second respondent company pending decision in the above said applications.
2. Application No.1935 of 2006 has been filed by the Official Liquidator under
sections 460(4), 542 and
543 of the Companies Act,1956, to examine the conduct of the respondents 1 to 6 therein, who are Ex-Directors of the company in liquidation under
sections 542 and
543(1) of the Companies Act, 1956 and order their liability to the extent of Rs.4,37,57,654/- and future claims of creditors with interest at the rate of 12% p.a. and to declare that the respondents 1 to 6 are personally liable for all debts and liabilities of the company in liquidation and to direct constitution of first charge on the property and effects in possession of the respondents 1 to 6 in respect of Rs.4,37,57,654/-.
3. The petitioning creditor in Application Nos.1625 to 1628 of 2006 has filed C.P.No.387 of 2003 for winding up of the first respondent company, M/s.Scanwell Freight Express India (P) Limited under
section 433(e) read with
section 434(1)(a) of the Companies Act on the ground of inability of the first respondent to settle the outstanding of HK $1162595.74 together with interest at 18% p.a. and the said company was wound up by order of this Court dated 22.3.2006 and the Official Liquidator was appointed with direction to take possession of the assets of the company.
4. It is seen that the first respondent company under liquidation was incorporated in the year 1996 having its place of business at No.204, Chella Mall, Second Floor No.11, Sir Thiyagaraya Road, T.Nagar, Chennai 600 017 with the object of carrying out the business of general carriers, forwarding agents, etc. The respondents 1 to 6 in the application filed by the Official Liquidator, who are respondents 3 to 8 in the application filed by the petitioning creditor were the Directors of the company under liquidation, as per the information obtained from the Registrar of Companies.
5. The company petition was filed before this Court on 9.12.2003 and on 22.3.2006 as stated above, winding up order was passed directing the Ex-Directors who are respondents 3 to 8 in the creditor's application and respondents 1 to 6 in the Official Liquidator's application to file statement of affairs within three weeks. The winding up order thus came into effect from the date of presentation of application, viz., 9.12.2003.
6. It is stated that the Official Liquidator on 25.5.2006, after intimation to Ex-Directors and the petitioning creditor took possession of assets, books of account, records, etc. from the 6th respondent, one of the Ex-Directors in the presence of representative of the petitioning creditor at No.204, Chella Mall, Second Floor No.11, Sir Thiyagaraya Road, T.Nagar, Chennai. The Official Liquidator sold the movables by way of auction on 17.10.2006 for a sum of Rs.1,62,300/- subject to the confirmation of the Court. On information from the 6th respondent Mr.S.Ramesh that the premises was taken on lease and it belongs to Mr.M.A.Mohammed Illiyas, M.M.Mohammed Salman Sherier, C/o.Jamals, Mount Chambers, Second Floor No.758, Anna Salai, Chennai and the first respondent company under liquidation paid Rs.3,50,000/- towards rental advance and the monthly rent of Rs.55,000/- was paid up to April, 2006, it was communicated to the landlord who in turn, intimated that the rental advance of Rs.3,50,000/- paid by the first respondent company under liquidation viz., M/s.Scanwell Freight Express Indian Private Limited has been transferred to the new company called, M/s.Scanwell Logistics Private Limited which is the second respondent in the applications filed by the petitioning creditor, as per the letter of the first respondent dated 15.7.2004 and the company is in arrears of rent to the extent of Rs.1,65,000/- for May, June, July, 2006 apart from the electricity and maintenance charges.
7. It is stated by the Official Liquidator in his report that the Ex-Directors have not produced the vital records and statutory records, however, one of Ex-Directors viz. Mr.S.Ramesh has filed statement of affairs on 27.6.2006 and subsequently, another Director, V.Babu also concurred with the said statement of affairs. On verification of the statement of affairs, the Official Liquidator has found the following discrepancies.
(1) Ex-Directors have stated that a sum of Rs.8,56,647/- is available as bank balance in HSBC Bank, No.96, Dr.Radhakrishnan Salai, Chennai-14 in ground No.041379878001. On verification from the bank, it is found that only a sum of Rs.2,96,170.60 was available. Therefore, the Ex-Directors are liable to account for the balance amount of Rs.5,60,476.40.
(2) The Ex-Directors have mentioned that a sum of Rs.402/- is available as cash on hand, but the same has not been handed over to the Official Liquidator and hence, the Ex-Directors are liable to account for the same.
(3) The Ex-Directors have stated that there are trade debtors from whom a sum of Rs.1,98,56,336/- is receivable, however, the Ex-Directors have failed to furnish the particulars regarding the address and transactions resulted in their inability to recover the amount. The Ex-Directors are liable for the said amount.
(4) The Ex-Directors have stated that under loans and advances category a sum of Rs.23,69,833/- is realisable from rent advance, fixed deposit, telephone deposit, Income-tax refund receivable from the Income-tax Department, but the details have not been furnished and therefore, it is not possible for the Official Liquidator to recover the said amount and the Ex-Directors are to account for the same.
(5) The Ex-Directors have stated that the value of furniture and fittings is Rs.7,00,000/-, however, the Official Liquidator is able to sell and realise a sum of Rs.1,62,300/- only and therefore, the Ex-Directors are liable to account for the difference amount of Rs.5,37,700/-.
(6) The Ex-Directors have stated that under the preferential creditors category, a sum of Rs.3,37,784/- is due and payable to the Income-tax Department under Fringe benefit tax, TDS payable. Since the Ex-Directors have admitted this amount, they are to account for the same.
(7) Under the unsecured creditors category, the Ex-Directors have stated that a sum of Rs.2,00,95,123.09 is due to various parties. However, no document has been furnished. Since the amount is admitted by the Ex-Directors, it would amount to mismanagement and mal-administration and they are liable to account for the same.
Since during the course of winding up proceedings, it is found that the Directors have administered the company to defraud the creditors and acted against the interest of the company, and hence, the Ex-Directors are liable for misfeasance based on the facts and figures stated in the statement of affairs dated 27.7.2006. Enclosing the statement of affairs, the Official Liquidator has filed the above said application.
8. It is the case of the petitioning creditor that the respondents 3 to 8 in its application, who are the Ex-Directors of the first respondent company under liquidation have fraudulently constituted a new company in the name, M/s.Scanwell Logistics Private Limited on 28.5.2004 during the pendency of the company petition which was filed on 9.12.2003 in the same premises of the first respondent company under liquidation with the Directors, (i) Mr.Hassen Adam Bin, (ii) Mr.Sin Wai Shing, (iii) Mr.Tang Keen Fei, (iv) Mr.S.Ramesh and (v) Mr.V.Sivakumar. Out of the said Directors, first, fourth and fifth were the Directors of the first respondent company under liquidation, who are respondents 3, 8 and 7 respectively and transferred the property and business of the first respondent company under liquidation. Therefore, they are liable under
section 536 of the Companies Act. They are also liable for breach of fiduciary duty towards the first respondent company under liquidation and the conduct of the respondents also amounts to misfeasance and liable for action under
section 543 of the Companies Act. It is also stated that when the second respondent company was fraudulently floated on 28.5.2004 itself, in the counter affidavit filed by the first respondent company sworn in October, 2004, there is no whisper about the constitution of the new company which shows the fraudulent design of the respondent company under liquidation. Therefore, the corporate veil of the second respondent has to be lifted to find out the fraud. With these pleadings, the applications have been filed by the petitioning creditor.
9. The 8th respondent in the application filed by the petitioning creditor who is the 6th respondent in the application filed by the Official Liquidator, by name, Mr.S.Ramesh, Ex-Director of the company under liquidation, in the counter affidavit has stated that he was not aware of the winding up order passed by this Court on 22.3.2006 till the intimation was given by the Official Liquidator on 2.5.2006 which was received by him on 13.5.2006. It is his case that he took steps to file statement of affairs as required under
section 454 of the Companies Act and the same was not possible. In the meantime, the Official Liquidator sealed the premises on 25.5.2006 and the particulars were not available and finally, the statement of affairs with the available details was filed on 28.6.2006 and therefore, there is no deliberate delay in filing the statement of affairs.
9(a). The allegation that the second respondent company, viz., M/s.Scanwell Logistics Private Limited was constituted with a design to divert the business of the first respondent company under liquidation is denied as false. It is stated that M/s.Scanwell Freight Express India (P) Limited, the first respondent company in liquidation, was acting as a shipping agent in India of its principal company viz., M/s.Scanwell Freight Express (Hongkong) Limited, Hongkong. According to the said respondent, the principal company in Hongkong decided to terminate the agency with the first respondent company under liquidation and started its own subsidiary in India. The said M/s.Scnawell Freight (Hongkong) Limited, Hongkong started M/s.Innoplas Limited, incorporated in British Virgin Islands and it was that company viz., M/s.Innoplas Limited which formed the second respondent company, M/s.Scanwell Logistics Private Limited which is 100% subsidiary of M/s.Innoplas Limited and therefore, according to the said Ex-Director, the second respondent company was formed at the instance of the principal company, M/s.Scanwell Freight (Hongkong) Limited, Hongkong and not by the Ex-Directors of the first respondent company under liquidation.
9(b). It is stated that the said three Directors of the first respondent company have only facilitated the formation of the second respondent company and they resigned from the first respondent company immediately after the second respondent company came into existence. It is stated that the second respondent is a 100% subsidiary of M/s.Innoplas Limited, a company incorporated in British Virgin Islands with the share holding pattern, Harbans Singh Dillon: 99.99% and others: 0.01%. Therefore, according to the said Ex-Director, the first and second respondents are different companies and the Director/respondents did not derive any benefit directly or indirectly from the business of second respondent and there is no breach of duty on the part of the Director/respondents.
10. In the counter affidavit filed by the second respondent in the application filed by the petitioning creditor, the Director of second respondent M/s.Scanwell Logistics India Private Limited, Mr.Alwin Andrew Hong Yu Shu has stated that the application is not maintainable since in the main company petition the second respondent is not a party. While stating that the allegations against the Ex-Directors are not known, the second respondent would state that the Ex-Directors of the first respondent company under liquidation have not fraudulently incorporated the new company. It is stated that only M/s.Innoplas Limited, a company incorporated in British Virgin Islands promoted the second respondent company and for promoting the new company, the assistance of two Ex-Directors of the first respondent company, viz., respondents 6 and 7 was obtained and the second respondent was incorporated on 28.5.2004.
10(a). It is stated that as against the issued and subscribed share capital of Rs.1,00,000/- of 10,000 equity shares of Rs.10/- each, M/s.Innoplas Limited agreed to subscribe 99,990 shares of Rs.10/- each while the 7th respondent Mr.V.Sivakumar agreed to subscribe 10 shares of Rs.10/- each as a nominee of M/s.Innoplas Limited. It is also stated in the counter affidavit that the Directors of the second respondent company are, Mr.Hassan Adam Bin, Mr.Sin Wai Shing, Mr.Tang Keen Fei, Mr.S.Ramesh and Mr.V.Sivakumar out of whom, the 1st, 4th and 5th Directors are the respondents 3, 7 and 8 in the application who are stated to have subsequently resigned from the first respondent company.
10(b). It is stated that the third respondent Mr.Hassan Adam Bin resigned on 21.6.2005, Mr.Ramesh resigned on 22.6.2005 and Mr.Sivakumar resigned on 21.6.2005. According to the second respondent, the present Directors of the second respondent company are Mr.Sing Wai Shingh, Mr.Tank Keen Fei, Mr.A.J.R.Anderson, Mr.T.T.A.Bongso and Mr.A.A.H.Shu and the present shareholders are M/s.Innoplas Ltd and Mr.Sivakumar, 7th respondent herein. It is stated that the second respondent company is situated at No.205, Chella Mall Complex, II Floor No.11, Sir Thiyagaraya Road, T.Nagar, Chennai while the Office of the first respondent is at No.204, Chella Mall Complex, II Floor No.11, Sir Thyagaraya Road, T.Nagar, Chennai and therefore, the first and second respondents are not functioning in one and the same place.
10(c). It is stated that the second respondent was not carrying on commercial business after its incorporation and it started commercial activities only from 1.4.2006. It is also denied that the funds and business of the first respondent company were deviated to the second respondent company. It is stated that the second respondent filed its 'nil' return as on 31.3.2004 and 31.3.2005. It is stated that the business of the second respondent is purely service oriented and the customers cannot be forced to avail the second respondent's services and therefore, there is no diversion of business or funds of the first respondent company.
11. Mr.T.K.Bhaskar, learned counsel appearing for the petitioning creditor would submit that the conduct of Ex-Director of the first respondent company who filed counter affidavit in October, 2004, in which there is no disclosure about the constitution of second respondent company on 28.5.2004, itself shows the evil design. He would rely upon various provisions of the Companies Act,1956, especially
sections 542 and
543 and also the details of Directors of the newly constituted company to show the fraudulent design on the facts of the case. According to him, the Ex-Directors of the company in liquidation, especially the respondents 3, 7 and 8 cannot disown their responsibility in the company affairs and when a strong suspicion was created in the constitution of the second respondent company, that would be a cause for complete investigation into the affairs of the second respondent company.
11(a). According to him, the investigation is required because of the commonality between the first and second respondents and their Directors and therefore, lifting the corporate veil is a necessary consequence. He would rely upon the judgement of the Supreme Court in Singer India Ltd., vs. Chander Mohan Chadha and Others [AIR 2004 SC 4368], Sh.Atul Gupta (Huf) vs. Trident Projects Limited and Others [(158) 2009 DLT 1] and also other judgments.
12. On the other hand, it is the contention of Mr.B.Giridhar Rao, learned counsel appearing for the second respondent that there is absolutely nothing to show that there was diversion of funds or business from the first respondent and in such circumstances, the question of investigation into the affairs of the second respondent does not arise. He has stated that as per the income-tax return, there was no income in 2005-06 and the winding up order in respect of first respondent company was passed on 22.3.2006 and therefore, absolutely there is no need for ordering investigation. It is also stated that the business of second respondent is personal in nature and there is no possibility of diversion of funds or business as it is service oriented business and it is only the quality of work which is a factor to be considered and the injunction petition is filed only to avoid competition. He would submit that no useful purpose would be served in directing investigation into the affairs of the second respondent company.
13. It is the submission of Mr.R.Saravanakumar, leaned counsel appearing for the respondents 6 to 8 in the petitioning creditor's application and respondents 4 to 6 in the Official Liquidator's application that the statement of affairs was filed though belatedly due to the reason that the company premises was sealed by the Official Liquidator on 25.5.2006 and the particulars were not readily available and hence, there is no fault committed by the said respondents. It is also stated that the second respondent company is a 100% subsidiary of M/s.Innoplas Limited, in which the Director Mr.Harbans Singh Dillon is having 99.99% shares and he is not a party in the proceedings and in such view of the matter, the present applications are liable to be dismissed.
14. On perusal of the records and hearing the submissions made by the counsel for the respective parties, it is clear that the first respondent company under liquidation was constituted with the object of carrying on the business of general carriers, forwarding agents, commission agents, agents for carriers, agents for air freighting cargo, etc. and the said company was incorporated in the year 1996 with six respondents stated in the application as its promoters and directors. The second respondent company was registered in India on 28.5.2004 with five Directors which includes three respondents herein viz., Mr.Adam Bin Hassan, Mr.Sivakumar and Mr.Ramesh. Even though it is stated in the counter affidavit of the second respondent that the business of the second respondent company is purely service oriented and therefore, the customers cannot be forced to avail the second respondent's service, there are no records produced to show as to what is the object of the second respondent company which was registered in India on 28.5.2004.
15. It is relevant to note that the company application was presented by the petitioning creditor on 9.12.2003 and the order of winding up was passed on 22.3.2006 by this Court. By virtue of
section 441 of the Companies Act which is as follows:
" 441.Commencement of winding up by Tribunal.-(1) Where, before the presentation of a petition for the winding up of a company by the Tribunal, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the Tribunal, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.
(2) In any other case, the winding up of a company by the Tribunal shall be deemed to commence at the time of the presentation of the petition for the winding up.", the winding up of the company under liquidation is deemed to have commenced from 9.12.2003.
16. It is true that when winding up order was passed on 22.3.2006 and by legal fiction as per
section 441 of the Companies Act, it is deemed to have commenced from the date of presentation, viz., 9.12.2003, there may not be any possibility for the Ex-Directors to have the knowledge about the winding up application in normal circumstances. A reference to the affidavit filed by the petitioning creditor shows that the first respondent company filed its counter affidavit in the main company petition and the affidavit was sworn in October, 2004. If, on behalf of the first respondent company in liquidation, a counter affidavit was filed in October, 2004, and admittedly, before that date, viz., on 28.5.2004 the second respondent company was incorporated along with the directors of the first respondent company, it is certainly incumbent on the part of the Directors of the first respondent company to have revealed the said fact in the counter affidavit and there cannot be any excuse on the part of the Directors of the first respondent company in not revealing the same.
17. Adding to that, even assuming that the second respondent company is a 100% subsidiary of M/s.Innoplas Limited, when admittedly, at the time of floating of second respondent company in May, 2004, three of Directors of the first respondent company were involved, certainly it creates a suspicion about the conduct of Ex-Directors as to whether there was any possibility on the part of the said Ex-Directors to constitute the second respondent company with a design of causing hardship to the creditors of the first respondent company under liquidation or with a collusive idea of transferring the business as well as assets of the first respondent company in favour of the second respondent company.
18. It is true that in the statements of accounts of the second respondent company for the year 2004-05 and 2005-06, the income is shown as 'nil', but the statements as well as auditor's reports do not contain all the names of Directors of the company and two Directors, viz., Mr.Sin Wai Shing and Mr.Tang Keen Fei have signed the statements. Further, it is also admitted by the second respondent itself in the counter affidavit that three Ex-Directors of the first respondent company viz., Mr.Hassen Adam Bin, Mr.Ramesh and Mr.Sivakumar have resigned on 21.6.2005, 22.6.2005 and 21.6.2005 respectively.
19. On the above said admitted facts and circumstances, a reasonable suspicion arises about the formation of the second respondent company and it is necessary that an investigation has to be ordered in respect of the affairs of the second respondent company. In fact, lifting corporate veil is an established principle in the corporate law enabling the Court to find out the real truth in cases where there are strong grounds to believe that the incorporation of company itself is a device to do some illegal activities or defraud certain people. In order to find out the real truth in the conduct of the first respondent company under liquidation by its Ex-Directors in the light of the formation of a new company viz., the second respondent with some of Ex-Directors of first respondent company as its founders, it is necessary to have further investigation and a report in this regard. This principle was found to be one of the exceptions to the celebrated concept that a company at large is a different person from the subscribers as it was held in Aron Salomon vs. Salomon & Company Limited [1897 Appeal Case 22], which was affirmed by the Hon'ble Supreme Court in Singer India Ltd., vs. Chander Mohan Chadha and Others [(2004) 7 SCC 1] by quoting a passage of its earlier judgement in Delhi Development Authority vs. Skipper Construction Company (P) Ltd., and Another [AIR 1996 SC 2005].
" 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. .... "
20. In such circumstances, I direct the Official Liquidator of this Court to investigate about the affairs of the second respondent company, viz., M/s.Scanwell Logistics Private Limited, especially with reference to the object of the said company and the transactions which have been taken place from the date of its incorporation viz., 28.5.2004 till date and file a report to enable this Court to pass final orders in the above applications. The petitioning creditor/applicant shall deposit an amount of Rs.10,000/- (Rupees ten thousand only) with the Official Liquidator towards expenses relating to the said investigation within one week from this date. The Official Liquidator, after giving notice to the Directors of the second respondent company including three Ex-Directors of the first respondent company under liquidation and also after giving opportunity to the petitioning creditor, shall file his report within a period of 8 weeks from the date of receipt of copy of this order.
Post all the applications on 14.9.2009.
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