2022 (9) TMI 65 - HC - Companies Law

Appeal for Delayed Refund Denied Due to Lack of Diligence and Interest Payment Refusal

The appeal seeking condonation of delay in filing against an order directing the refund of a deposited amount in a company-in-liquidation case was ... Revival of company under liquidation - Section 454 of the Companies Act, 1956 - HELD THAT:- There could not have been much variation in the position of the assets, since the winding up petition was filed in and about August 2016 under Section 433 of the Act and accordingly, the petition was admitted on 31.08.2016 - the Company Court appointed the OL as the provisional liquidator, and directed the directors of the company-in-liquidation to file the statement of affairs, within twenty-one days from the said date. The onus, as regards the affairs of the company-in-liquidation, at that point in time, was put on the appellant. The appellant, clearly, tarried and did not show enough alacrity to file a revival scheme - this state of affairs continued to operate, even after the appellant had obtained an order dated 31.01.2018, whereby the OL was directed to grant the appellant, access to the records of the company-in-liquidation. Demand of interest - HELD THAT:- The amount deposited by the appellant was not a debt owed to him. Therefore, no case for payment of interest was made out having regard to the parameters. Even in equity, the appellant in this case would not be entitled to interest, as he failed to present a scheme before the learned company judge, with the result that the liquidation proceedings of the company were considerably delayed. In any event, there was no bar in the appellant approaching the Court at an earlier date for refund of the money deposited by him. Therefore, it cannot even be said that the appellant was deprived of the use of money, and thus should be compensated by way of interest. The complete information was not available for filing a scheme, appears to be a ruse for explaining the lack of alacrity and keenness - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether interest is payable on an amount deposited by a petitioner with the Court Registry where the deposit was made to facilitate a proposed revival scheme for a company in liquidation. 2. Whether the claimant's asserted inability to obtain records from the Official Liquidator absolves the claimant from the obligation to present a revival scheme and/or justifies an award of interest for deprivation of use of deposited funds. 3. Whether equitable jurisdiction or other legal principles (statute, trade/custom, contract) justify awarding interest as compensation where no statutory or contractual entitlement to interest exists. 4. Whether ex-directors/shareholders of a closely held company can be held to have the onus of furnishing information (statement of affairs) relevant to liquidation and revival, affecting entitlement to relief. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to interest on court-deposited funds made to pursue a revival scheme Legal framework: Interest is payable only where there is (a) a substantive statutory provision, (b) enforceable trade/usage/custom, (c) contract/agreement providing for interest, or (d) the court, on equitable principles, awards interest as compensation or damages. Precedent Treatment: The Court considered existing authority establishing that interest by way of compensation is not ordinarily awarded for wrongful detention of a debt absent the listed legal bases; the authorities were applied to the facts rather than distinguished or overruled. Interpretation and reasoning: The deposited amount was not a debt owed to the depositor but funds placed to demonstrate seriousness about a revival proposal. In the absence of statutory provision, contractual entitlement, or established trade/custom, and given the depositor's failure to establish circumstances warranting equitable intervention, no legal basis existed for awarding interest. The Court further noted that interest as damages requires breach of contract or similar foundation, which was not asserted or proved. Ratio vs. Obiter: Ratio - interest requires a legal foundation (statute, contract, enforceable custom, or equitable grounds properly established). Observational remarks about modes of awarding interest were explanatory (obiter) but anchored to the decision. Conclusion: No award of interest on the refunded deposit was warranted; the trial judge's refusal to award interest was not interfered with. Issue 2 - Effect of alleged denial of access to Official Liquidator's records on claimant's obligation to present a revival scheme and on entitlement to interest Legal framework: A claimant seeking to propose a scheme of revival must demonstrate readiness and diligence in presenting a workable scheme; where statutory or court orders impose duties on directors/ex-directors (e.g., filing statement of affairs), those duties inform the capacity to claim lack of information. Precedent Treatment: The Court applied established principles that obstructed access to information may justify delay only if the claimant takes appropriate procedural steps to enforce access; absent enforcement/adequate steps, inability to obtain records cannot be invoked as a shield. Interpretation and reasoning: The record showed (and the claimant conceded) that the company was closely held, the claimant and family held a significant shareholding, and the claimant had been a director shortly before liquidation and was directed to file the statement of affairs. The winding-up petition and appointment of a provisional liquidator occurred within a close time frame to the claimant's directorship and to the attempted scheme filing. The appellant failed to enforce an earlier order directing access to records and did not move promptly to seek refund earlier; therefore, the asserted lack of access was held to be an inadequate explanation for not presenting a scheme and did not justify interest as compensation for deprivation of use of money. Ratio vs. Obiter: Ratio - a claimant's failure to pursue available remedies to obtain information (including enforcement of court orders) undermines claims that denial of access prevented presentation of a scheme or entitles the claimant to interest. Observations on motivation and keenness are factual findings supporting the legal conclusion (ratio). Conclusion: The asserted impediment of the Official Liquidator did not absolve the claimant from the obligation to present a revival scheme nor justify an award of interest; the trial court's reliance on the claimant's inaction was upheld. Issue 3 - Scope of equitable jurisdiction to award interest where claimant contributed to delay in liquidation proceedings Legal framework: Courts may exercise equitable jurisdiction to award interest where justice requires, but equitable relief is conditional on establishing circumstances that attract the court's equitable power; contributory negligence or delay by the claimant may disentitle the claimant to equitable compensation. Precedent Treatment: The Court applied established equitable principles and authorities that equity will not ordinarily compensate a claimant who has contributed to the delay or who has failed to take timely steps to protect its interest. Interpretation and reasoning: The claimant's delay and lack of alacrity in presenting a revival scheme materially contributed to prolongation of the liquidation process. Given the absence of a statutory or contractual basis for interest and the claimant's contribution to delay, equitable intervention to award interest was inappropriate. The Court also noted that the claimant could have sought refund earlier, undermining any claim of being deprived of use of funds to a compensable extent. Ratio vs. Obiter: Ratio - equitable award of interest is precluded where the claimant's own conduct (delay, failure to act) materially contributes to the situation for which compensation is sought. Conclusion: Equitable jurisdiction did not support an award of interest under the circumstances; the refusal to grant interest was appropriate. Issue 4 - Obligation of ex-directors/shareholders regarding company affairs and its bearing on relief Legal framework: Statutory provisions and court directions require directors/ex-directors to file statements of affairs and disclose company affairs upon appointment of a provisional liquidator; in closely held companies, insider knowledge and access heighten the onus on former office-holders and significant shareholders to show diligence in revival efforts. Precedent Treatment: The Court treated relevant statutory duties and prior court directions as controlling on the parties' obligations; these authorities were followed to place onus on the claimant rather than distinguished. Interpretation and reasoning: The provisional liquidator's appointment and the court's direction to file statements of affairs imposed responsibility on the directors at the relevant time. The claimant, being a recent director and a significant shareholder (either individually or with family), could not credibly assert lack of information sufficient to excuse inaction. The history of court directions ordering access to records further weakened the claim. Ratio vs. Obiter: Ratio - ex-directors and significant shareholders bear responsibility to ensure compliance with statutory and court-ordered disclosure obligations, and failure to do so impacts entitlement to relief such as interest. Conclusion: The claimant's status and statutory duties undermined his contention of informational incapacity and weighed against any additional relief beyond refund; the trial court's approach was affirmed. Overall Disposition The Court upheld the trial court's order directing refund of the deposited amount but declined to interfere with the refusal to award interest, concluding that no statutory, contractual, customary, or equitable basis existed to award interest and that the claimant's own delay and failure to take available procedural steps negated entitlement to interest.