2011 (10) TMI 514 - HC - Companies Law

Court allows substitution of legal representatives in company misfeasance case under Companies Act, 1956.

Umashankar Versus Official Liquidator of Rai Bahadur Shreeram Durgaprasad Co. Ltd. (In liquidation)

The Court upheld the order allowing the substitution of legal representatives in company misfeasance proceedings under the Companies Act, 1956. The Court ... Winding up - Official Liquidator seeking direction to furnish names of legal representatives of deceased director – whether Company Judge is justified in granting to bring legal representatives of deceased respondent no.1 and of one of his legal heirs to be brought on record in Company Application – Held that:- No prejudice to the interest of the legal representatives of deceased Durgaprasad or deceased Vithaldas in the matter - mere grant of permission vide impugned order to bring them on record does not mean and cannot be construed to mean that any of their defences are in any way vitiated or prejudiced. Company Court is free to consider all these defences after the relevant material is brought on record in inquiry as per law Issues Involved:1. Substitution of legal representatives of deceased respondents in company misfeasance proceedings.2. Validity of orders allowing substitution without notice or opportunity to legal representatives.3. Applicability of the maxim 'actio personalis moritur cum persona' in misfeasance proceedings.4. Requirement of inheritance of property by legal representatives to continue proceedings.5. Impact of the initial stage of proceedings at the time of the respondent's death on the substitution of legal representatives.Detailed Analysis:1. Substitution of Legal Representatives of Deceased Respondents in Company Misfeasance Proceedings:The appeal challenges the order dated 29.09.1985, which allowed the substitution of legal representatives of deceased respondent no.1, Durgaprasad, in misfeasance proceedings under Sections 542 and 543 of the Companies Act, 1956. The Official Liquidator sought to bring on record the legal representatives, including Vithaldas, Ramkrishna, and Murlidhar, all sons of Durgaprasad, and later Vinodkumar, Vinitkumar, and Smt. Veenadevi, children of Vithaldas. The legal representatives opposed this substitution, raising various objections.2. Validity of Orders Allowing Substitution Without Notice or Opportunity to Legal Representatives:The appellants argued that the orders permitting substitution dated 24.02.1989 and 14.03.1990 were passed without notice or opportunity to the legal representatives, rendering them non-binding. They contended that the first proper application for substitution was filed on 17.09.1993, and only then were they given an opportunity to show cause. The Court acknowledged these objections but found that the legal representatives already on record had not raised any defense until the application of 17.09.1993, and thus, no legal right was violated by the impugned order.3. Applicability of the Maxim 'Actio Personalis Moritur Cum Persona' in Misfeasance Proceedings:The appellants relied on the maxim 'actio personalis moritur cum persona' (a personal action dies with the person) and cited the Supreme Court judgments in P.A. Tendolkar and Parthasarathi Sinha to argue that misfeasance proceedings should not continue against legal representatives if the deceased director did not have an opportunity to defend himself. The Court noted that each case must be assessed on its facts. The Supreme Court in Parthasarathi Sinha allowed substitution, emphasizing that liability under Section 543 does not abate on the death of the wrongdoer.4. Requirement of Inheritance of Property by Legal Representatives to Continue Proceedings:The appellants asserted that legal representatives must have inherited property from the deceased to be substituted in misfeasance proceedings. They claimed not to have inherited any property from Durgaprasad, a fact not countered by the Official Liquidator. The Court found this to be a matter requiring inquiry and noted that the Official Liquidator had stated on affidavit that the legal representatives had inherited property, justifying the substitution.5. Impact of the Initial Stage of Proceedings at the Time of the Respondent's Death on the Substitution of Legal Representatives:The appellants argued that since Durgaprasad died at the initial stage of proceedings, his legal representatives could not be substituted. The Court referred to the Supreme Court's judgment in P.A. Tendolkar, which allowed continuation of proceedings against legal representatives if the deceased director had an opportunity to defend himself. The Court found that Durgaprasad had not raised any defense before his death, and thus, the substitution of his legal representatives was justified.Conclusion:The Court upheld the order allowing the substitution of legal representatives, noting that it did not prejudice their defenses. The Court emphasized that all objections and defenses raised by the legal representatives would be considered during the trial. The appeal was disposed of with no order as to costs, clarifying that the substitution did not vitiate or prejudice any defenses available to the legal representatives.