2019 (5) TMI 978 - HC - Companies Law

Court deems Official Liquidator's report inadequate in ex-director investigation, stresses compliance with Companies Act.

The Court found the Official Liquidator's report inadequate in investigating ex-directors due to missing documentation, not meeting Companies Act ... Misfeasance proceedings against the Ex-directors of the Company (In Liquidation) - HELD THAT:- The office reports, regarding investigation against ex-directors of the company (in liquidation), as submitted by auditor, in absence of statutory books and records of the company prior to liquidation period, it is difficult for the auditor to detect quantum of misfeasance. Ms. Das De, learned advocate appearing on behalf of Official Liquidator relies on section 455 of Companies Act, 1956, which provides for official liquidator to file preliminary report, report thereafter and, if necessary, further report - The report filed does not satisfy or correspond to any of the provisions in said section. The report has been filed. Let it be kept on record - The application be shown to have been disposed of. Issues involved:1. Official Liquidator's report regarding investigation against ex-directors of the company (in liquidation).2. Compliance with provisions of section 455 of the Companies Act, 1956.3. Application for leave to withdraw the report.Analysis:Issue 1: Official Liquidator's report regarding investigation against ex-directors of the company (in liquidation)The Official Liquidator filed a report detailing the difficulties faced in investigating the ex-directors of the company (in liquidation) due to the absence of statutory books and records prior to the liquidation period. The appointed auditor expressed doubts about initiating misfeasance proceedings against the ex-directors in the absence of essential documentation. The report did not align with the requirements of section 455 of the Companies Act, 1956, as it failed to address key aspects such as the manner of company formation, particulars of fraud since inception, or the expression of an opinion on fraud for invoking specific powers under section 478.Issue 2: Compliance with provisions of section 455 of the Companies Act, 1956The report submitted by the Official Liquidator did not meet the criteria set out in section 455 of the Companies Act, 1956. It did not cover the essential matters specified in the sub-sections, nor did it provide the necessary details regarding the company's promotion, formation, or any fraud-related particulars since its inception. As a result, the Court found the report lacking in substance and directed it to be kept on record without further action. The Court emphasized the importance of adherence to the statutory provisions for official liquidators to ensure a comprehensive and compliant reporting process.Issue 3: Application for leave to withdraw the reportA subsequent application was made seeking permission to withdraw the deficient report filed by the Official Liquidator. However, since the Court had already determined the inadequacy of the report and no further action was warranted, the application for withdrawal was deemed unnecessary. The Court clarified that its decision did not impede the Official Liquidator from pursuing appropriate actions in accordance with the Companies Act, 1956, and the Companies (Court) Rules, 1959, indicating that further steps could still be taken within the legal framework despite the disposition of the application for withdrawal.In conclusion, the judgment highlighted the importance of fulfilling statutory reporting requirements, especially in cases involving investigations against former company directors during liquidation. The Court's decision underscored the need for official liquidators to adhere to the prescribed procedures and provide comprehensive reports that address all relevant aspects specified by the law to ensure transparency and accountability in such proceedings.