Misfeasance liability requires proved director misconduct; assets already taken and sold by a secured creditor cannot be recovered from directors.

Misfeasance liability could not be imposed on a director where the alleged loss related to company assets already taken into possession and sold by a secured creditor. The record showed that the first respondent had filed the statement of affairs and that the Section 454 proceedings were closed after defects were rectified, so non-accounting of assets was not established as continuing misconduct. The value of the plant and machinery sold by KSFC could not be recovered from the directors, and any dispute over the sale or valuation lay between the Official Liquidator and KSFC. Specific proved misconduct attributable to the director was required, and it was not shown.

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Issues: Whether the first respondent could be held liable for misfeasance and directed to pay the alleged loss arising from non-accounting of assets, and whether the amount represented by the plant and machinery sold by KSFC could be recovered from the directors.

Analysis: The application for misfeasance was based substantially on the balance sheet and on the assertion that the directors had not accounted for immovable property and plant and machinery. However, the record showed that the first respondent had earlier filed the statement of affairs and the proceedings under Section 454 of the Companies Act, 1956 had been closed after the defects were rectified. The material also showed that KSFC had taken possession of the factory, plant and machinery before the winding up petition and had later sold the assets. In such circumstances, the value of the plant and machinery could not be treated as an amount remaining realizable from the directors. Any dispute about the propriety or valuation of the KSFC sale was a matter between the Official Liquidator and KSFC. Misfeasance liability also required specific misconduct attributable to the director, which was not established on the record.

Conclusion: The first respondent was not liable for the claimed amount and the misfeasance application was not maintainable on the facts proved.

Ratio Decidendi: A director cannot be held liable in misfeasance for the value of company assets that had already been taken over and sold by a secured creditor, and such liability must rest on specific proved misconduct attributable to the director.

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