JUDGMENT
S.K. Kapur, J.
1. This petition under Section 515(3) of the Companies Act, 1956, has been made by the Registrar of Companies, Delhi, for removal of Dr. Hardit Singh Giani, voluntary liquidator of Messrs. Saroup Bansilal Engineers (India) Private Limited (in liquidation). Two prayers have been made in the petition :
(1) for the removal of the liquidator; and
(2) for the voluntary liquidation of the company to be continued under the supervision of this court.
2. Mr. Satish Chander, the learned counsel for the petitioner, did nto press the second prayer for the liquidation being continued under the supervision of this court. The company was incorporated on 8th September, 1948, with an authorised and paid-up capital of Rs. 1,00,000 and Rs. 60,400 respectively. It is a creditors’ voluntary winding-up and a resolution was passed on 29th July, 1961. The notice of appointment of the voluntary liquidator
dated 7th August, 1961, was filed with the Registrar of Companies under Section 516 of the said Act. Copies of the liquidator’s statements of account filed by the liquidator pursuant to Section 551 of the Companies Act have been annexed to the petition. The balance-sheet of the company as on July 31, 1961, shows that the total liabilities of the company are about Rs. 94,000 while the assets are of the value of about Rs. 23,621. The liquidator’s statement of account as on July 31, 1962 shows–(i) total amount of the estimated assets at the date of the commencement of the winding-up: Rs. 23,621.50: (ii) assets realised: Rs. 340-91; and (iii) estimated value of the assets still to be realised : Rs. 23,280.59 paise. The statement as on July 31, 1964, shows–(i) total amount of the estimated assets at the date of the commencement of the winding-up: Rs. 23,621.50 ; (ii) assets realised : Rs. 5,065.91 and (iii) estimated value of the assets still to be realised : Rs. 18,555.59. Again, the statement as on January 31, 1966, shows the same figures about the assets realised and the estimated value of the assets still to be realised and a note is appended that ” this is a book entry and there is no hope of realisation of any amount from this figure and should be taken as dead item.” According to the liquidator, therefore, he does nto expect to realise anything out of the assets of over Rs. 18,000. There is a slight change in the language of the note in the statement as on July 31, 1966, which reads:
” This is a book entry and there is no hope of realization of any amount from this figure (except of course from the machinery which is quoted in the books worth Rs. 5,285.29 and is in a dilapidated condition, some amount after its release) and should be taken as a dead amount,”
3. From this note Mr. Sawhney, the learned counsel for the liquidator, wanted me to deduce that Rs. 18,555.59 are the total realisable assets and the liquidator is hopeful of Realizing something by sale of the machinery which is in a dilapidated condition. This note obviously deviates from the position taken up by the liquidator in the note quoted Hereinbefore relating to the period ending January 31, 1966. Again, in the statement for the period ending January 31, 1967, the note relating to total realisable assets of Rs. 18,555.59 reads:
” This is a book entry and there is no hope of any realization from
this amount. ”
4. One of the principal arguments made by Mr. Satish Chander was on the basis of these notes and he said that according to the liquidator nothing can be realised out of the assets of over Rs. 18,000 while the Registrar in paragraph 9 of his petition supported by an affidavit alleges that write off of Rs. 18,555’59 as dead asset of the company is unjustified. Mr. Sawhney, the learned counsel for the liquidator, explained the position this way. He said that, as appears from the letter of the liquidator dated 28th
October, 1965, the Custodian had allotted some property to the company and was claiming rent therefore. The company, on the other hand, claimed that it had effected repairs and improvements on the property and was, therefore, entitled to over Rs. 11,000 after adjustment of the Custodian’s dues and this sum of Rs. 18,555’59 includes that claim against the Custodian which has no merit. Mr. Sawhney further pointed out that the liquidator has been filing statements of account regularly and the Registrar, who was competent under Section 234 of the said Act to call for information or explanation with respect thereto, never objected to the aforementioned notes made by the liquidator. The fact, however, remains that at least part of the assets comprising of machinery, which according to the notes of the liquidator is a dead investment, can in the opinion of the petitioner yield some money.
5. The other points made by Mr. Satish Chander, the learned counsel for the petitioner, were that:
(1) though admittedly the liquidator realised only Rs. 5,065.91 yet in the various statements mentioned already he had shown much larger amounts under the headings “realisations and disbursements”. For instance, in the statement for the period February 1, 1964, to July 31, 1964, under the heading “realisations ” it is stated “nature of assets realised brought forward : Rs. 19,091.29 ” and under the heading “disbursements” it is mentioned ” nature of disbursements brought forward : Rs. 17,504.50 “. Similar entries about realisations and disbursements appear in subsequent statements and the figure of ” brought forward ” in the statement of February 1, 1966, to July 31, 1966, under the heading “realisations” is Rs. 22,624.09 and under the heading “disbursements” is Rs. 22,578.81.
(2) the liquidator spent the entire amount realised on liquidation expenses and did nto pay even a farthing to the creditors and/or contri-butories;
(3) the company had been advanced a loan of Rs. 15,000 by the Rehabilitation Finance Administration Unit, Department of Economic Affairs, Ministry of Finance, Government of India. The said Ministry tried to contact the liquidator for the recovery of the said loan from the assets of the company and it had been reported by the said Ministry that the attitude of the liquidator was all along uncooperative and defiant and ” it is felt that the process of this liquidation is a collusive affair between the ex-managing director and the liquidator”. Reliance is placed on a letter dated 1st July, 1966, received from the said Ministry ; and
(4) the liquidator retained for more than ten days an amount exceeding Rs. 500 in contravention of the provisions of Sub-section (2) of Section 553 and the Registrar finding the liquidator’s explanation in this behalf unsatisfactory imposed an interest of Rs. 113.77 which amount had nto yet been paid.
6. The allegations regarding the inflation of the amounts of realisations and disbursements shown in the statements of account are contained in paragraph 10 of the petition and the only explanation rendered in paragraph 10 of the reply is that the statements of account had been furnished in the prescribed form No. 153 ; that all such statements had been acknowledged by the Registrar ; that the Registrar never objected to this ; and that if the figures nto required to be incorporated in the statements were so entered it was the duty of the Registrar to have pointed out the same at the earliest opportunity. Mr. Sawhney, the learned counsel for the liquidator, sought to explain these inflated figures this way. He said that the liquidator maintains his own account with the company and since the company is devoid of funds he has, from time to time, to advance money to the company for the day to day expenses. The figures of realisations and disbursements, therefore, include nto only the amounts realised or disbursed by the company but also the amounts paid by the company to the liquidator and/or by the liquidator to the company. I need only say that this is a highly unsatisfactory way of preparing the statements of the company’s accounts. Form No. 153 requires the amounts realised and disbursed by the company to be shown and the statements filed by the liquidator cannto but be misleading. With respect to the loan by the finance corporation Mr. Sawhney said that the managing director of the company had satisfied that loan by giving his verified claim to the corporation but the corporation reversed that entry because they were of the opinion that the claim was nto genuine. Mr. Sawhney pointed out that litigation between the managing director and the corporation is going on in which the managing director has raised a contention that having once given him a final discharge it was nto open to the corporation to reverse the entries. As to non-payment to creditors and contributories, Mr. Sawhney said that out of a paltry sum of about Rs. 5,000 nothing could be paid to the creditors and contributories as that amount was nto enough even to meet the day-to-day liquidation expenses and the liquidator had been advancing moneys to the company from his own pocket without even charging any interest.
7. Under Section 515(2) of the Companies Act the court may remove a liquidator and appoint the official liquidator or any other person as a liquidator in place of the removed liquidator “on cause shown”. Mr. Sawhney said that ” cause shown ” must mean that the liquidator has been guilty of malpractices or irregularities which renders him unfit to act as a liquidator. True, that fairplay of the liquidator is one of the important factors to be taken into consideration in such a matter, but the overriding consideration must in all cases be the real interest of the liquidation. In my opinion, “on cause shown” must mean that the real and substantial interest of the liquidation for which the liquidator is appointed requires the removal of the
liquidator. It is nto necessary that there should be any personal misconduct or unfitness proved against the liquidator. If the court is satisfied, having regard to the circumstances of the case, that it is in the overall interest of the liquidation that the liquidator should be removed, the section appears to be ample to entitle the court to remove the liquidator. There need nto necessarily be anything against the individual. In other words, personal unfitness in a particular liquidator may be a ground for removing him, yet this power to remove is nto confined only to that. Reference may be made to In re Adam Eyton, Limited : Ex parte Charlesworth. Mr. Sawhney relied on V. Rangaswami Achari v. Mandhai Viswa Brahmana Sarvajana Sahaya Nidhi Ltd., wherein it had been observed :
” In such circumstances, can it be said that the applicant has ‘ shown cause ‘ to remove the voluntary liquidator? The expression ‘ on cause shown ‘ is nto to be understood as an equivalent or substitute for ‘ if the court thinks fit’. Though an element of discretion is apparent in Section 515 of the Act, yet such judicial discretion should be judiciously exercised. It is nto every act in the past of the voluntary liquidator that should be weighed, tested and scrutinised to find a case for his removal. In cases where companies resort to voluntary liquidation, it should nto be forgotten that it is a decision arrived at by the members in the exercise of their sound judgment. No doubt, the rule of majority prevails on all such occasions. The members are interested in liquidating their Nidhi and conserving its available resources at the least expense, so that the creditors may be paid and if possible the shareholders get what little they can. While thus considering their own interest which primarily looms large in their minds, it is injudicious to expect that the general body of members will entrust such management of the affairs in the hands of some one whom they cannto trust or believe. It is nto every unfitness in the man that comes up for a microscopic examination, when the matter is taken up before the court for removal of the voluntary liquidator. The unfitness should go to the roto of the matter and should be apparent from the record. If the general body of members themselves were prepared to ignore the past, excuse the faults and repose confidence on one amongst them, and elect him as voluntary liquidator, I am afraid that such a voluntary decision arrived at in a worthy democratic way ought nto to be lightly interfered with by courts exercising discretionary jurisdiction under Section 515 of the Indian Companies Act, 1956.”
8. I agree with the learned judge that the choice made by the creditors
and/or members of the voluntary liquidator should nto be lightly interfered
with but the courts also look wider a field and see the purpose of the
appointment of the liquidator which purpose in all cases is the honest
interest of the liquidation. Reliance was also placed by Mr. Sawhney on Giani Hardit Singh v. Registrar of Companies (F.A.O. No. 47 of 1966 decided by Hardy J. on November 6, 1967). The ratio of that decision is that a voluntary liquidator should nto be removed in an arbitrary manner and without justifiable reasons. I respectfully agree with that proposition. What are the facts here. The liquidator has on unequivocal terms expressed his views that nothing further can be realised. The Registrar is, on the other hand, of the opinion that there are realisable assets. Claims have to be settled with the Custodian of Evacuee Property as well as with the finance corporation which can be done more effectively by the official liquidator. Without pronouncing on the validity of the irregularities alleged by Mr. Satish Chander I would say that the honest purpose of the liquidation can be better served if the official liquidator is appointed as the liquidator of the company. I would, therefore, allow this petition, remove Dr. Hardit Singh Giani and appoint the official liquidator as the liquidator of the company.
9. There will, however, be no order as to costs .