1930 (1) TMI 14 - HC - Companies Law

Directors not trustees under Limitation Act; Time runs from misfeasance; Appeal dismissed with costs.

The court held that directors of companies are not trustees for the purpose of section 10 of the Limitation Act. The limitation period runs from the date ... Validity of acts of directors Issues Involved:1. Whether directors of companies under the Indian Companies Act are trustees for the purpose of section 10 of the Limitation Act.2. If they are not trustees, from what date does limitation runRs.Issue-wise Analysis:1. Trusteeship of Directors under Section 10 of the Limitation Act:The primary question is whether directors of companies are considered trustees under section 10 of the Limitation Act. The judgment clarifies that directors are not trustees in the context of section 10. The court refers to several English cases to support this position, including In re Forest of Dean Coal Mining Company, Fliteroft's Case, and In re Faure Electric Accumulator Company, where it was established that directors are not trustees of a debt due to the company. They are only trustees of assets that have come into their hands or are under their control. The judgment also cites Kathiawar Trading Company v. Virchand Dipchand, where it was held that directors are not trustees in whom the property of the companies has become vested in trust for any specific purpose. The court agrees with this decision, emphasizing that the purposes of a company are too general to be considered specific under the meaning of the section. The judgment concludes that directors can plead limitation because they are not trustees for the purpose of section 10 of the Limitation Act.2. Date from which Limitation Runs:The second issue concerns the date from which the limitation period starts if directors are not trustees. The judgment examines whether new rights with a new cause of action arise upon the winding up of a company. It is noted that while certain new rights may be conferred by the winding-up process, such as the liability to pay calls as a contributory, the right of a liquidator under section 235 of the Indian Companies Act does not create new rights but only provides a summary and efficient remedy. This is supported by the House of Lords decision in Cavendish Bentinck v. Fenn and In re City Equitable Fire Insurance Company, Ltd., where it was held that the relevant sections deal only with procedure and do not give any new rights.The court also discusses conflicting decisions from Indian High Courts, specifically the decisions in In the matter of the Union Bank, Allahabad, Ltd., and Bhim Singh v. Basheshar Nath Goela. The judgment aligns with the decision of the Punjab High Court, which holds that the cause of action arises from the time when the misfeasance was committed. Consequently, the application is barred by limitation whether Article 36 or Article 120 applies.The judgment also addresses an argument by the counsel for one of the directors, suggesting that not all misfeasance would make directors liable under section 235. However, the court finds it unnecessary to consider this point in the appeal.Conclusion:The appeal is dismissed with costs. The court agrees with the discretion exercised by the learned trial judge in granting leave to the Official Liquidator to appeal and authorizing the expenses of the appeals from the assets of the company. The judgment concludes that directors are not trustees for the purpose of section 10 of the Limitation Act, and the limitation period runs from the date of the misfeasance. Therefore, the application by the Official Liquidator is barred by limitation.Separate Judgment by Cornish, J.:Cornish, J. concurs with the main judgment, emphasizing that directors are not express trustees as per section 10 of the Limitation Act. He references several English authorities, including Flitcroft's case and Soar v. Ashwell, to support this view. Cornish, J. also discusses the interpretation of 'specific purpose' within section 10, citing Khaw Sim Teh v. Chush Hooi Guoh Neoh, and concludes that the directors cannot be regarded as express trustees. He agrees that the liquidator does not acquire a new right from the winding-up order to enforce a claim that has already become time-barred under Article 36 or Article 120 of the Limitation Act. Cornish, J. agrees with the order of costs passed by his learned brother.