Introduction: The Kerala High Cout recently ruled on the case of K.N. Abdul Gafoor Vs Kasmisons Builders Pvt. Ltd, challenging an order from the National Company Law Tribunal (NCLT). The tribunal had directed the petitioner, a shareholder, to produce a statement of affairs in a winding-up proceeding. The crux of the challenge lies in the interpretation of Section 274(1) of the Companies Act, 2013, which governs such matters.
Detailed Analysis: The petitioner argued that Section 274(1) allows the tribunal to direct a company, not an individual shareholder, to file objections along with a statement of affairs in winding-up cases. The legal contention revolves around the language of the provision, emphasizing the term “company.” The court, after considering the submissions, concurred with the petitioner, declaring the directive against the shareholder as illegal.
Section 274(1) clearly outlines that the tribunal can only instruct the company to submit its objections and statement of affairs within a specified timeframe. The court found no provision empowering the tribunal to extend this directive to individual shareholders. Consequently, the impugned order (Ext.P5) requiring the petitioner to produce the statement of affairs was deemed unlawful and set aside.
The court emphasized that the winding-up proceedings would proceed according to the law, directing the company to furnish the statement of affairs if deemed necessary during the course of the proceedings. The judgment reiterates the importance of adhering to statutory provisions and the limited scope of the tribunal’s authority in such matters.
Conclusion: In conclusion, the Kerala High Court’s decision in the case of K.N. Abdul Gafoor Vs Kasmisons Builders Pvt. Ltd clarifies the limitations of the NCLT’s authority under Section 274(1) of the Companies Act, 2013. The ruling ensures that directives for filing statements of affairs are appropriately confined to the company, excluding individual shareholders. This judgment contributes to the precision and legality of winding-up proceedings, upholding the principles of corporate law.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
In winding up proceedings NCLT cannot direct Shareholder to produce statement of affairs
This Original Petition is directed against Ext.P5 order of the National Company Law Tribunal, Kochi Bench (‘NCLT’ for short), which directs the petitioner in the winding up proceedings bearing No.CP/74/KOB/2019, to place on record a copy of the statement of affairs, subject to payment of Rs.50,000/-. The short ground under which Ext.P5 is challenged, is based on Section 274(1) of the Companies Act, 2013, which contemplates such an order only as against the company; and not against a person like the petitioner, who is only a share holder.
2. Heard the learned counsel for the petitioner, learned counsel for the respondents 1 & 3 and 5 & Although, service is complete, there is no representation for respondents 2 & 4.
3. As regards the proposition canvased by the learned counsel for the petitioner that, an order directing production of statement of affairs can be made only as against the company, it appears that there is no serious quarrel, as reflected from the submissions made by the learned counsel for the respondents. Section 274(1) is extracted here below.
274. Directions for filing statement of affairs. – (1) Where a petition for winding up is filed before the Tribunal by any person other than the company, the Tribunal shall, if satisfied that a prima facie case for winding up of the company is made out, by an order direct the company to file its objections along with a statement of its affairs within thirty days of the order in such form and in such manner as may be prescribed:
Provided that the Tribunal may allow a further period of thirty days in a situation of contingency or special circumstances:
Provided further that the Tribunal may direct the petitioner to deposit such security for costs as it may consider reasonable as a pre- condition to issue directions to the company.
4. It is clear from the above referred provision that, the 6th respondent-Tribunal can only direct the Company to file its objections along with the statement of affairs, within the time frame as stipulated in Section 274(1) of the Companies Act. As such, the impugned direction against the petitioner vide Ext.P5, to place on record the statement of affairs is per se illegal and the same is hereby set aside. The winding up proceedings will continue in accordance with law, directing the company to produce the statement of affairs, if it is found necessary to proceed with the matter .
The Original petition is disposed of as above.