1993 (7) TMI 282 - HC - Companies Law

Court Orders Continuation of Misfeasance Proceedings, Emphasizes Trial for Determining Facts

A Stock & Co. (In Liquidation) Versus Dilip Kumar Chakraborty

The court ordered that the misfeasance proceedings should continue with the official liquidator filing the points of claim and the respondents filing ... Winding up – Power of court to assess damages against delinquent, directors, etc. Issues Involved:1. Allegations of misfeasance and breach of trust against the respondents.2. Maintainability of the misfeasance proceedings against respondent No. 3.3. Statutory protection under the Industrial Reconstruction Bank of India Act, 1984.4. Specificity and sufficiency of the allegations against the respondents.5. Procedural aspects of the misfeasance proceedings.Issue-wise Detailed Analysis:1. Allegations of Misfeasance and Breach of Trust Against the Respondents:The official liquidator filed an application under section 543(1) of the Companies Act, 1956, alleging that the respondents, who were directors of the company at the time of its winding up, misapplied, misappropriated, or retained Rs. 72,87,903.86, and were guilty of misfeasance and breach of trust. The specific allegations included:- Misappropriation of Rs. 1,11,00,260.18 lent by secured creditors.- Misappropriation of Rs. 39,14,443.75 collected as unsecured loans from customers.- Failure to discharge statutory liabilities amounting to Rs. 14,36,282.62.- Neglecting to collect Rs. 4,64,565.31 from sundry debtors.- Failure to deposit Rs. 3,30,391 towards various statutory liabilities.- Failure to pay Rs. 41,961 in arrear taxes and contributions, leading to misappropriation.2. Maintainability of the Misfeasance Proceedings Against Respondent No. 3:Respondent No. 3 contested the maintainability of the proceedings, arguing that he was not a director at the time of the company's winding up as his nomination was withdrawn in June 1984. The court allowed respondent No. 3 to be heard on the basis of his affidavit regarding the maintainability of the application. The court clarified that if any disputed question of fact was involved, respondent No. 3 would be relegated to the normal procedure of trial of a misfeasance proceeding.3. Statutory Protection Under the Industrial Reconstruction Bank of India Act, 1984:Respondent No. 3 claimed statutory protection under section 36(3)(b) of the Industrial Reconstruction Bank of India Act, 1984, which provides that a nominee-director shall not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in discharge of his duties. The court acknowledged that the nominee-director, being an employee of IRBI, had statutory obligations under the Companies Act, 1956, and whether these duties were performed in good faith was a question of fact to be decided at trial.4. Specificity and Sufficiency of the Allegations Against the Respondents:The court noted that the application contained vague allegations against all directors without specific allegations against respondent No. 3. The court referenced the decision in Official Liquidator, Milan Chit Fund and Finance P. Ltd. v. Joginder Singh Kohli, which emphasized the need for detailed narration of specific acts of omission and commission in misfeasance proceedings. The court found that the allegations were not specific enough to proceed against respondent No. 3 solely based on the application.5. Procedural Aspects of the Misfeasance Proceedings:The court decided that the usual procedure of misfeasance proceedings should be followed, allowing the official liquidator to file points of claim and the respondents to file points of defence. The court emphasized the need for a trial to determine whether the respondents acted in good faith. The court ordered the official liquidator to file the points of claim within six weeks, and respondents Nos. 2 and 3 to file their points of defence within six weeks thereafter. The documents were to be discovered within four weeks thereafter, followed by inspection, and the date of hearing would be fixed by the appropriate court.Conclusion:The court ordered that the misfeasance proceedings should continue with the official liquidator filing the points of claim and the respondents filing their points of defence. The court emphasized the necessity of a trial to determine the facts and whether the actions of the respondents were in good faith. The balance of convenience favored following the usual procedure of misfeasance proceedings.