Directors' personal liability turns on gross negligence, fiduciary gain, and breach of trust in unauthorized lending transactions.

Directors are not personally liable for advances made within corporate powers where the transaction was undertaken with board knowledge and assent, supported by an intended security, and no gross negligence or misfeasance is shown. A fiduciary who obtained fixed deposit benefits from the bank was required to account for and repay those sums, because later absence from the board did not end the trust-based obligation. Personal liability also attached to the managing director for an unauthorised overdraft concealed from the board, where he acted for personal advantage and breached his duty of supervision. Ordinary directors were not liable on that overdraft, but the responsible officer was.

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Issues: (i) Whether the directors were personally liable for advances and overdrafts made to Mr. E. A. Labanti on the footing of an intended mortgage security; (ii) Whether Mr. Jang Bahadur Sinha was bound to account for the amounts received by him under fixed deposit receipts taken from the Bank; (iii) Whether the directors, and in particular the managing director, were liable for the overdraft in favour of the Upper India Investment Limited.

Issue (i): Whether the directors were personally liable for advances and overdrafts made to Mr. E. A. Labanti on the footing of an intended mortgage security.

Analysis: The advances were made with the knowledge and assent of the board and were treated as supported by a contractual undertaking to execute a mortgage. The company had no articles restricting the directors' powers, and the lending was not ultra vires. Mere imprudence or an error of judgment does not create personal liability unless the conduct is so manifestly reckless as to amount to gross negligence. On the facts, the transaction was entered into on the strength of an expected security and did not establish misfeasance against the directors as a body.

Conclusion: The directors, as a body, were not personally liable on this head; the claim failed against them.

Issue (ii): Whether Mr. Jang Bahadur Sinha was bound to account for the amounts received by him under fixed deposit receipts taken from the Bank.

Analysis: Mr. Jang Bahadur Sinha stood in a fiduciary relationship to the Bank when he obtained the receipts, and he could not retain benefits secured through that position at the expense of the shareholders and creditors. His later absence from the board on some dates did not extinguish the obligations arising from the fiduciary relationship and the continuing trust. The sums obtained by him were therefore recoverable by the liquidator.

Conclusion: Mr. Jang Bahadur Sinha was liable to account and repay the amount received by him.

Issue (iii): Whether the directors, and in particular the managing director, were liable for the overdraft in favour of the Upper India Investment Limited.

Analysis: The overdraft was not shown to have been authorised or even brought before the board, so personal liability could not be fastened on the directors generally. However, the managing director had a higher duty of supervision, and the circumstances showed that he knowingly concealed the transaction and acted from personal advantage because of his family connection with the borrowing concern. That conduct amounted to breach of trust and justified personal liability for the loss caused to the Bank.

Conclusion: The directors generally were not liable, but Lala Jagmohan Lal was liable for the loss arising from this overdraft.

Final Conclusion: The application succeeded only in part, with recovery ordered against Mr. E. A. Labanti, Mr. Jang Bahadur Sinha, and Lala Jagmohan Lal, while the remaining claims against the other directors were rejected.

Ratio Decidendi: Directors are not personally liable for losses caused by mere mistakes or imprudent business decisions if they act within power and with reasonable care, but fiduciary gains wrongfully obtained and losses caused by dishonest concealment or breach of trust are recoverable from the responsible officer.

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