1993 (6) TMI 200 - HC - Companies Law

Appellant-director found liable under Companies Act, absolved of some claims, appeal partly allowed.

Babubhai Chandulal Mody Versus Official Liquidator, Atlas Import & Export Co. (P.) Ltd.

The court found the appellant-director liable under Section 543(1) of the Companies Act for a sum of Rs. 11,000 with interest but not liable for other ... Winding up – Power of court to assess damages against delinquent, directors, etc. Issues Involved:1. Liability of the appellant-director under Section 543(1) of the Companies Act, 1956.2. Non-joinder of the deceased director and his legal representatives.3. Merits of the claim regarding the sum of Rs. 30,090.89.Detailed Analysis:1. Liability of the Appellant-Director under Section 543(1) of the Companies Act, 1956:The official liquidator filed an application under Section 543(1) of the Companies Act, 1956, claiming that the appellant-director was liable for a sum of Rs. 30,090.89. The court examined whether the appellant-director was accountable for the money or property of the company. The court referred to the provision which allows the court to compel directors to repay or restore money or property misapplied or retained. The court emphasized that the liability of directors under Section 543 is joint and several, meaning both the appellant-director and the deceased director were liable for the misappropriated funds.2. Non-joinder of the Deceased Director and His Legal Representatives:The appellant contended that the proceedings could not be sustained without including the legal representatives of the deceased director, J.M. Berry. The court rejected this contention, stating that the liability of directors is joint and several, and the non-joinder of the legal representatives does not vitiate the proceedings. The court cited the Supreme Court ruling in Official Liquidator v. Parthasarathi Sinha, which clarified that the cause of action against a deceased director for misfeasance survives after his death and can be pursued against his legal representatives. However, the court noted that the official liquidator had not taken proceedings against the deceased director within the stipulated five-year period.3. Merits of the Claim Regarding the Sum of Rs. 30,090.89:- Item 1 (Rs. 11,000 Loan to Devichand and Co.): The court upheld the single judge's finding that the directors were liable for the loan given to Devichand and Co., which was beyond the company's objects, making it an ultra vires act. The directors were held jointly and severally liable for Rs. 20,085, including interest.- Item 2 (Rs. 30): The court found the amount negligible and upheld the single judge's dismissal of this claim.- Item 3 (Rs. 3,000 Deposit with Income-tax Department): The court disagreed with the single judge, accepting the appellant's explanation that the Income-tax Department had not refunded the amount despite repeated demands. The appellant was not held liable for this amount.- Item 4 (Rs. 766 Value of Stock): The court accepted the appellant's explanation that the stock was destroyed and permission was sought to write it off. The appellant was not held liable for this amount.- Items 5 and 6 (Rs. 4,870.85 from Arun Agencies and Rs. 1,339 from Shah Electronics): The court accepted the appellant's explanation that these were bad debts and efforts to recover them were unsuccessful. The appellant was not held liable for these amounts.Conclusion:The court held that the proceedings under Section 543(1) of the Companies Act against the appellant-director were valid. The appellant-director was found liable to pay Rs. 11,000 with interest at 6% per annum, but not liable for the remaining items. The appeal was partly allowed, modifying the judgment and decree of the single judge accordingly. There was no order as to costs, and a fee was ordered to be paid to the counsel for the official liquidator at the rate payable to a senior counsel for the Central Government.