Misfeasance liability requires proof of misapplication or breach of trust, not mere accounting irregularities or imprudence.

Misfeasance under Section 543(1) requires proof of breach of trust, misapplication or retention of company money, and actual loss; mere imprudent or disputed accounting conduct is insufficient. The Karnataka High Court accepted the explanation that the challenged journal entries and fund movements were accounting adjustments, settlement of inter se dues, and business transactions made during efforts to revive the company. As the materials did not show dishonest diversion of funds, personal retention of money, or deliberate loss to the company, the allegation of misfeasance failed and liability for the claimed amount was not established.

---

---

Issues: Whether the respondents, as erstwhile directors of the company in liquidation, were guilty of misfeasance or breach of trust so as to attract liability under Section 543(1) of the Companies Act read with Rule 260 of the Companies (Court) Rules, 1959.

Analysis: The application rested on alleged wrongful journal entries, diversion of funds, and post-winding-up accounting entries. The explanation accepted by the Court showed that the disputed entries were made as part of accounting adjustments, settlement of inter se dues, and business-related transactions undertaken while the company was struggling to revive itself. The materials did not establish that the first respondent had dishonestly misapplied company funds, retained money for personal use, or caused deliberate loss to the company. The Court applied the settled principle that misfeasance is not made out by every act of imprudence or misconduct, but requires a breach of trust involving misapplication or retention of company money and actual loss.

Conclusion: The allegation of misfeasance was not proved, and the respondents were not liable for the amount claimed.

---