2010 (5) TMI 404 - HC - Companies Law

Court Grants Relief for Misfeasance & Breach of Trust under Companies Act

The Court, invoking section 543 of the Companies Act, 1956, granted reliefs against ex-directors for misfeasance and breach of trust. The ex-directors ... Whether the applicant proves that the respondents are liable to make good ₹ 26,83,000 with interest at 18 per cent p.a. with effect from 26-2-1999 being the difference of value declared in statement of affairs and the valuation by M/s. KSFC on 19-9-2002 in respect of the fixed assets, plant and machinery, furniture and fittings, etc.? Whether the applicant proves that the respondents are liable to pay ₹ 1,61,605 with interest at 18 per cent p.a. from 26-2-1999 as disclosed in the head of account, loan and advances in the audited balance sheet, made up to 31-3-1998 which was not realised? Whether the applicant proves that the respondents are due and payable ₹ 6,096 and ₹ 18,126 under the head of account, cash in hand and cash at Bank as disclosed in the audited balance sheet made up to 31-3-1998 together with interest at 18 per cent from the date of winding up order, i.e., 26-2-1999 ? Held that:- It is no doubt true that in the balance sheet Ex.P3 duly signed by 1st respondent Managing Director of the company as on 31-3-1993 discloses ₹ 1,61,605 towards loans and advances as detailed in Schedule-I. So also under the head of account cash in hand and Bank discloses ₹ 24,222 which the ex-directors, respondents herein have failed, in the first place, to deposit with the Official Liquidator and in the second, make available necessary material particulars of the Bank so as to make good the said sum. Apparently, this claim is not opposed by filing statement of objections or tendering evidence of the respondents. In fact, learned counsel for the respondent states that he has no instructions. In that view of the matter, it cannot but be said that the respondents are guilty of misapplication, retention and become liable and accountable for money of the applicant-company. Having regard to the fact that the amounts due to the company are retained by the ex-directors, it is appropriate to levy interest at the rate of 12 per cent p.a. on the said sum as against the claim for interest at the rate of 18 per cent p.a.In the result, the application is allowed in part. The respondents are jointly and severely liable to pay ₹ 1,85,827 with interest at 12 per cent with effect from 22-6-1999 up to the date of payment. Issues:1. Application invoking section 543 of the Companies Act, 1956 for reliefs against ex-directors.2. Examination of respondents and claims for repayment.3. Allegations of misfeasance and breach of trust by ex-directors.4. Assessment of damages against delinquent directors.5. Period of limitation for filing application under section 543.6. Discrepancies in asset valuation and liability of ex-directors.7. Determination of liability for repayment with interest.Issue 1: Application invoking section 543 of the Companies Act, 1956 for reliefs against ex-directorsThe company in liquidation, represented by the Official Liquidator, filed a petition under section 543 of the Companies Act, 1956, seeking various reliefs against the ex-directors, including summoning for examination and repayment of specific amounts with interest.Issue 2: Examination of respondents and claims for repaymentThe ex-directors were summoned for examination, but only two engaged counsel while the third remained absent and was placed ex parte. The applicant presented evidence and documents, but the respondents did not cross-examine or provide any defense.Issue 3: Allegations of misfeasance and breach of trust by ex-directorsThe company, engaged in battery manufacturing, was wound up in 1999, with the ex-directors failing to fulfill financial obligations and provide necessary information. Claims were made against them for misfeasance and breach of trust in various financial matters.Issue 4: Assessment of damages against delinquent directorsSection 543 of the Act empowers the Court to assess damages against delinquent directors for misapplication or retention of company funds or property. The application was filed within the prescribed time limit of five years from the winding-up order.Issue 5: Period of limitation for filing application under section 543The application was filed within the statutory period after the winding-up order, meeting the requirements of section 543 of the Companies Act, 1956.Issue 6: Discrepancies in asset valuation and liability of ex-directorsSignificant discrepancies were found in the valuation of company assets between the statement of affairs and the valuation by another entity. The Court evaluated whether these differences constituted misapplication or breach of trust by the ex-directors.Issue 7: Determination of liability for repayment with interestThe Court rejected the claim for the difference in asset valuation but held the ex-directors liable for other financial discrepancies, ordering repayment of a specific amount with reduced interest due to retained company funds.This detailed analysis covers the key issues addressed in the judgment, providing a comprehensive overview of the legal proceedings and outcomes in the case.