U. P. ROOFING CO. LTD. v. STATE OF ALLAHABAD — 1995 DIGILAW 1335 (ALL)

A. K. BANERJI, J. ( 1 ) THE abovenoted application has been filed by the official liquidator under Section 481 of the companies Act, 1956 ("the Act", in short), for dissolution of the company, U. P. Roofing company Limited (hereinafter referred to as "the company in liquidation" ). ( 2 ) THE relevant facts, in brief, are that the company (in liquidation) was promoted as a joint sector enterprise by the U. P. Small Industries Corporation (UPSIC) and private entrepreneurs in the year 1975. The board of directors of the said company consisted of two nominee directors of the UPSIC, one director of the U. P. Finance Corporation (UPFC) and two directors of the private entrepreneurs. The company failed to run and a winding-tip Petition No. 13 of 1986 was filed in this court by the promoter, UPSIC, for winding up of the company (in liquidation ). This petition was allowed on December 7, 1987, by this court and the official liquidator attached to this court was appointed the liquidator. Notices were issued by the liquidator to all the directors of the company (in liquidation) for filing the statement of affairs. However, only one of the nominee directors of the UPSIC, namely, R. K. Kapoor, filed the statement of affairs which too was incomplete. The official liquidator consequently filed Company Application No. 19 of 1992, under Section 454 (5) of the Act praying that cognizance for default he taken against the directors of the company (in liquidation) for not filing the statement of affairs. To this application counter-affidavits were filed by Shri R. K. Kapoor, one of the nominee directors of the UPSIC and Sri V. K. Manoocha, who was one of the directors of private entrepreneurs. The UPSIC also filed a separate counter-affidavit. V. K. Manoocha in his counter-affidavit stated that he had resigned from the directorship of the company in the year 1976 and had sent intimation to this effect to the UPSIC as well as the State Bank of India. After receipt of the notice he had conveyed the said fact to the official liquidator. V. K. Manoocha in his counter-affidavit stated that he had resigned from the directorship of the company in the year 1976 and had sent intimation to this effect to the UPSIC as well as the State Bank of India. After receipt of the notice he had conveyed the said fact to the official liquidator. Consequently, it was stated that the said director was not possessed either of any record or assets of the company which was being managed by the UPSIC, Shri R. K. Kapoor and the UPSIC had in their counter-affidavits stated that the affairs of the company were being managed by the private entrepreneurs and the directors of the UPSIC were only nominee directors and were not concerned either with the records or day to day functioning of the company (in liquidation ). The statement of affairs which was filed by R. K. Kapoor was on the information available with the UPSIC and they were not able to furnish any other information as the records were not available with them. The office report shows that other directors of the company could not be served as their whereabouts were not known. The other nominee director of the UPSIC, namely, V. K. Chaudhary, had retired from the UPSIC in the year 1991 and the said director also could not be served. This court, however, had directed learned counsel appearing for the UPSIC to get a chartered accountant appointed and to file a statement of affairs after inspecting the records from the office of the Registrar of Companies or the tax authorities. Efforts with regard to the same were made by the UPSIC but the chartered accountant has also failed to get any information as the relevant records were not available to him. ( 3 ) THE official liquidator in his aforesaid application has prayed for the dissolution of the company (in liquidation) on the ground that intimation has been received from the State Bank of india that the UPFC had taken possession of the assets of the company under Section 29 of the state Financial Corporations Act on account of default committed by the company in paying off the UPFC. The entire land, building, plant and machinery of the company had been sold by the upfc to a third party in the year 1988 and the State Bank of India has filed a suit for recovery of money against the company (in liquidation) after adjusting the money in their account with the bank. The said suit is pending against the company as well as the guarantors. The half-yearly statement of account as on March 31, 1995, prepared by the official liquidator shows that only sums of Rs. 65 and Rs. 189. 39 are lying in the bank account of the company (in liquidation) and there is no possibility of realisation of any further amount as the assets of the company have already been sold and the names and addresses of the debtors of the company are not available with the official liquidator or with any of the directors of the company. In view of these facts the official liquidator has prayed that it was not possible to proceed with the winding up proceedings of the company and it was in the interest of justice that the said company be dissolved. ( 4 ) SHRI S. N. Verma, learned senior counsel, appearing for the Stale Bank of India has, however, raised an objection to the prayer made by the official liquidator in the present application. He has stated that the bank has already filed a suit against the company (in liquidation) and obtained orders from this court under Section 446 of the Act for proceeding with the hearing of the suit. It was, therefore, contended that in case the company against which the suit is pending is dissolved the same may affect the maintainability of the suit itself which is also against the guarantors who are parties to the said suit. In the alternative, learned counsel has contended that in case the company (in liquidation) is to be dissolved, the interest of the bank may be safeguarded to the extent that the suit be kept alive against the guarantors by an order of this court. In the alternative, learned counsel has contended that in case the company (in liquidation) is to be dissolved, the interest of the bank may be safeguarded to the extent that the suit be kept alive against the guarantors by an order of this court. ( 5 ) HAVING heard learned counsel for the State Bank of India and the official liquidator, I am of the view that if the company (in liquidation) is directed to be dissolved by an order of this court the suit against the guarantors will still continue and cannot be taken to be dismissed, in view of the provisions of Section 128 of the Contract Act. This view finds support from the decision of the Supreme Court in the case of Maharashtra State Electricity Board v. Official Liquidator [1983] 53 Comp Cas 248, 254. In the said case, it was observed as follows : "under Section 128 of the Indian Contract Act, 1872, the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of that Act of any contract between the creditor and principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequences of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy or in liquidation proceedings in the case of a Company does not absolve the surety of his liability. " ( 6 ) A similar question arose before the Calcutta High Court in the case of United Bank of India v. Modern Stores (India) Ltd. , AIR 1988 Cal 18 ; [1990] 69 Comp Cas 697. In the said case a suit was brought by the bank in respect of the advance to the principal debtor, the company, on the overdraft account and against the guarantors in respect thereof and during the pendency of the suit the company was dissolved and went into voluntary liquidation. One of the questions raised in the said case was once a suit against the principal debtor was allowed to be dismissed whether section 134 of the Contract Act came into play because the plaintiff had discharged the principal debtor and the guarantors, therefore, released of their liability. One of the questions raised in the said case was once a suit against the principal debtor was allowed to be dismissed whether section 134 of the Contract Act came into play because the plaintiff had discharged the principal debtor and the guarantors, therefore, released of their liability. It was held that Section 134 of the contract Act had no application to the facts of the said case and where the principal debtor stood dissolved by operation of law, the discharge of a principal debtor does not operate as discharge of sureties. The plaintiff would be at liberty to proceed against the guarantors or the sureties. ( 7 ) IN view of the aforesaid decisions and the settled position in law the suit filed by the bank against the company (in liquidation) could proceed against the guarantors even though the same stands dismissed against the principal debtor in view of the orders passed by this court dissolving the company (in liquidation ). ( 8 ) TAKING into consideration the facts and circumstances of the present case, I agree with the submission made by the official liquidator that no useful purpose shall be served in keeping this matter alive and to proceed further with Company Application No. 19 of 1992, as the entire assets of the company have been sold by the UPFC and there are hardly any funds in the company (in liquidation ). The liquidation proceedings cannot continue especially in view of the fact that the records of the company are not available and the matter is pending before the court for over nine years. It will, therefore, be expedient in the interest of justice to order that the company, U. P. Roofing Company Limited (in liquidation) be dissolved under Section 481 of the act from the date of this order. It is however, made clear that the suit filed by the State Bank of india against the guarantors of the company (in liquidation) which is pending before the civil court shall not be affected by this order and shall continue against the guarantors in accordance with law. It is however, made clear that the suit filed by the State Bank of india against the guarantors of the company (in liquidation) which is pending before the civil court shall not be affected by this order and shall continue against the guarantors in accordance with law. ( 9 ) AS a result, the application of the official liquidator under Section 481 of the Companies Act, 1956, for dissolution of the company, U. P. Roofing Company Limited (in liquidation), is allowed and the company is dissolved from the date of this order and Company Application No. 19 of 1992, and Company Petition No. 13 of 1996 stand disposed of accordingly. .